Archive for the ‘Economy’ Category

Weekly Update 13th – 17th December 2010

The fall in the domestic markets in the week gone by was really painful. The fall was seen across the board; both mid and small size company stocks were heavily punished. SEBI probed in some companies for price rigging reignited the concerns that there may be some cases which are yet to come.

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On the global front, thiswas the week when most of the major developed markets along with the emerging economies closed in positive. The disconnect reveals that overhand in the markets was more related to domestic issues only.U.S. economic data is continuing to point out that environment over there is improving. A consumer sentiment that reflects the strength of consumer spending rose six months high to 74.2 in the first half of December from 71.6 at the end of November.

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U.S. trade deficit in October shrank more that expected to $38.7 billion from a revised $44.6 billion shortfall the month before. Further more, the expected continuance of Bush tax for next two years which is likely to be cleared by U.S. senate in next two weeks will also help in improving sentiments. Japanese economy saw an annualized expansion of 4.5 percent for the quarter ended 30th September against expectations of 4.1 percent. In order to address inflationary pressures in the economy, China once again raised the reserve requirements for the third time in five weeks by 50 bps.

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The recent move takes reserve ratios requirement now to18.5 percent for the biggest banks. Chinese leaders have also indicated that the nation will shift to a tighter, “prudent” monetary policy for next year. Consumer and producer price index rose to 5.1 percent and 6.1 percent respectively for the month of November as against the expectation of 4.7 and 5.1 percent respectively. Moving ahead, we believe that the concerns pertaining to Indian Industrial growth and in turn overall growth of the economy would not be there after seeing the 10.8 percent growth in IIP for the month of October as compared to 4.4 percent last month. Moreover,we also believe that even for the month of November we could see the Industrial growth picking up close to 12 percent.

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The indicators like car sales growth of 20 percent,commercial vehicle sales growing by more than 18 percent and HSBC Manufacturing PMI rising to 58.4 in November from 57.2 in previous month give support to our belief.In the forthcoming days we believe we may continue to see bouts of volatility in the markets as nervousness is still there. In short term now we think the advance tax figures would help the markets in gauging the profitability of India Inc. as the result season is approaching. Nifty has strong support between 5900-5840 and Sensex between 19400-19000.In commodity section, bullions counter may trade on volatile path due to lack of clear direction on risk sentiment. Base metal counter will take cues from economic data from US. Crude oil further movement will depend on the demand from China, OECD countries and weather conditions in Europe.

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OPEC members are planning to increase output over the coming months. Copper will continue to make fresh high in near term as the global deficit will push its prices to new levels. The outcome of Central Economic Work Conference in China will further guide the movement in metal counter. In agro pack guar complex may remain on weaker side amid weak export demand. Jeera and peeper maytad lower on selling pressure on news of re-sowing. Mentha oil can tumble lower onarrivals. Soya will remain range tracking mixed movement in CBOT. CPO may trade on higher side tracking firm Malaysian CPO.

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Ace Derivatives & Commodity Exchange

Ace Derivatives & Commodity Exchange with over five decades of impeccable experience in commodity trading, has recently transformed itself and established an online multi-commodity platform with a pan-India presence. Kotak Group is the anchor investor in ACE Commodity Exchange with a 51 per cent stake, while Haryana”s Hafed has a 15 per cent interest and banks like Bank of Baroda, Union Bank and
Corporation Bank have an over 14 per cent stake. The remaining equity is held by Ahmedabad Commodity Exchange members.

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Products offered

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Ace offers futures trading the following commodity groups:

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Bullions: Gold, Silver

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Energy: Crude oil, Natural Gas

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Agri

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•Castor Seed (Ex-Warehouse Ahmedabad)

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•Mustard Seed (Ex-Warehouse Jaipur-inclusive of all taxes but exclusive of Sales tax/ VAT)

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•Soybean Ex-Warehouse Indore -inclusive of all taxes but exclusive of Sales tax/VAT)

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•Refined Soy Oil (Ex-Tank Indore-Inclusive of all Taxes and Levies)

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•Pulses

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•Chana

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•Spices

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•Turmeric

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The Kotak-anchored exchange started futures trading in soybean, soyoil, rape/mustard seed, chana and castor seed. With the launch, the first set of contracts will be available for trade for delivery on November 20, December 20 and January 20.

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The lot size of trading is fixed at 10 tonnes of each contract. According to the exchange data, the castor seed contract for December-expiry opened at `3,442 a quintal, chana at `2,440 a quintal, soyabean at `2,244 a quintal, mustard seed at `573 for every 20 kg and refined soy oil at`545.90 for every 10 kg.

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Trade Timings:

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Agri: 10:00 a.m. to 05:00 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Bullion/Metals: 10:00 a.m. to 11.30 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Risk Management

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The Exchange assumes the counter party risk by guaranteeing trade settlement. The Risk Management framework of the Exchange ensures timely settlement.

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More hands working on…..

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Haryana State Cooperative Supply and Marketing Federation (Hafed) is planning to set up spot exchanges of the recently launched Ace Derivatives and Commodity Exchange (ACE) in mandis soon. The association of Hafed with the ACE will help it in playing the role of an aggregator and a risk manager on behalf of thousands of farmers, who will be motivated to become participants of the ACE in the coming decade.

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In addition to its convenient trading platform, Ace provides a robust clearing & settlement infrastructure that supports the complete process of trade intermediation – including registration of trades, settlement of contracts and mitigation of counter party risk; giving traders the peace of mind in times of increased market volatility.

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Weekly Update 1-5th November 2010

Global markets saw profit booking ahead of the Federal Reserve’s decision on monetary easing at its meeting on 2-3 November 2010 in order to spur growth and to reduce the unemployment rate. Economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy. IMF pointed out that global liquidity, by whichthey meant money supply growth in the G-4 economies of Japan, the US, the euro zone and the UK, has an impact five times as large as domestic liquidity on what it called the liquidity receiving economies, or the emerging markets.

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The U.S. gross domestic product rose at a 2 percent annual rate in the third quarter after a 1.7 percent increase in the previous three months. Japanese factory production fell 1.9 percent in September from August and core consumer prices saw a decline of 1.1 percent from a year earlier added to worries that stronger yen is affecting economy expansion. G-20 finance ministers and central bankers said they will refrain from “competitive devaluation” and let markets have a bigger role in setting foreign-exchange values.

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Citing Inflation a major concern, RBI has last hiked the policy rates by 25 bps in September for the fifth time. Headline inflation has come off to single digit and is likely to come down further going ahead as harvest season produce is expected to come in the market. The government recently allowed duty-free import of rice and wheat and has released grains from its stocks to rein in food price rise. On the manufacturing side, Industrial production growth dropped to 5.6 percent in August from 15.2 percent in July. The growth of six infrastructure industries has further slowed to 2.5% in September, pulled down by contraction in output of coaland petroleum refinery.Though possibility of hike of another 25 bps by RBI in its meeting on 2nd November cannot be ruled out but a large section of the market believes that this timearound RBI may not touch upon the policy rates citing inflation coming down going forward and moderation in manufacturing activity.

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Further the actions taken so far by RBI has yet to give any material affect in the economy as even after the hikes in policy, the banks have yet to make adjustments in interest rates. Nifty has support between 5930-5840 and Sensex between 19640-19200.Sea saw movements in commodities is showing the nervousness among the investors ahead of Fed meeting which is scheduled in this week. If Fed goes for second round of quantitative then it can give confidence to economy and spill over can be seen in commodity as well. On the other side, if Fed goes for less than expected money injection in economy then we can see some downside in base metals and energy.

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Dollar index slid about 6 percent since early September on the talk of same “QE2” in US. Bullions were the major beneficiary of this fall in dollar index. October was a volatile month for commodities in which commodities reacted on every speculation over quantitative easing and agricultural markets going their own way as crops forecasts were cut. Commodities end month with modest gain. Investors should adopt cautious approach ahead of meeting.

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GLOBAL BOARD OF TRADE (GBOT)

Adding another trading floor in the whole list of numerous exchanges around the world, Global Board of Trade (GBOT) ”the first international multi-asset exchange”  based out of Mauritius, was officially launched by that country’s Prime Minister Navinchandra Ramgoolam.

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GBOT is a wholly owned subsidiary of Financial Technologies (INDIA) Limited, a leading provider of trading technology solutions and a global leader in creating and operating transparent, efficient, and liquid tech-centric exchanges transacting a broad spectrum of asset classes, including equities, commodities, fixed income, and foreign currency instruments. GBOT is also a member of leading industry associations such as Association of Futures Markets (AFM), Futures and Options Association (FOA), Swiss Futures and Options Association (SFOA), and Defra EU Emissions Trading Scheme (EU ETS).

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In the Hands of………..

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GBOT has a very strong board comprising reputed names such as Mr. Venkat Chary (Chairman), Mr. Jignesh Shah (Vice- Chairman), Mr. Mohammad A. Vayid (Director), Mr. V. Hariharan (Director) , Mr. Joseph Hadrian Bosco (Managing Director and Chief Executive Officer).

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Trade Timings

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It is proposed that the normal market trading hours on Global Board of Trade for Currency and Commodity Derivatives Segments will be 09:30 Hrs Mauritian Time (05:30 Hrs GMT) till 23:30 Hrs Mauritian time ( 19:30 Hrs GMT). Any decision about revision of the trading hours, as and when it happens, will be informed to the market participants via trading circulars.

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Value Propositions

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  • The strategic location of Mauritius (i.e. GMT +4) with respect to the rest of the world will enable the investing community to hedge price risk movements vis-à-vis the asian, Europenn and American markets.

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  • Trades will be in the form of standardized contracts and participants will be anonymous , thus ensuring the price discovery  process will be free from the influence of any vested interest or non-market forces.

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  • The commodity market segment of GBOT will enable sellers and buyers of commodities to protect their business from the adverse effects of price volatility in the terrestrial markets. The price risk management will be through the time-tested process of ‘hedging’.

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  • The advantage of a moderate tax regime prevailing in Mauritius will be of immense benefit to investors and traders alike.

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  • GBOT would offer commodity as well as currency derivative products on its state-of-the-art electronic exchange platform with efficient clearing and settlement systems to ensure counter-party guarantee for all trades.

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  • For the first time worldwide, two African currency futures will be traded.

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Products:

Bullions: Gold, Silver

Currencies: EUR/USD, GBD/USD, JPY/USD, USD/MUR, ZAR/USD

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Weekly Update 25th – 29th October

Losses due to profit taking in the Indian markets during initial part of the week were recouped seeing the huge response for Coal India offering especially from the overseas investors. The issue attracted bids that exceeded the combined gross domestic product of Latvia and Iceland. However most of the Asian markets corrected in the week gone by after China unexpectedly raised interest rates to curb inflation and to prevent an asset price bubble in the economy on concerns over regions economic growth.

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The move indicates that the consensus has been reached for lower growth. Albeit past experience has shown that initial interest rate hikes does not give much harm to economic growth. China’s economy expanded by 9.6 percent in the third quarterless than the growth experienced in the prior quarter but higher than the median estimates of 9.5 percent.

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Results of companies from Europe to U.S. supported markets. According to Bloomberg data of the 132 companies in the S&P 500 that reported results since Oct. 7, more than 85 percent have topped analysts’ per- share earnings estimates.Whereas in Europe, of the 46 companies in the Stoxx 600 that have posted results since Oct. 7, 32 have beaten estimates for per-share income.

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The result season has so far been good in India. Banks have posted decent to strong earnings growth. In the Information technology sector TCS and Infosys surprised positively while Wipro surprised negatively. Auto companies are expected to deliver strong set of numbers on the back of higher volumes with price increase. Higher metal prices are likely to provide good earnings to manufacturer of base metals. Cement companies are likely to post bad set of numbers on the back of lower realization and good monsoon season.

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Market is eyeing over G-20 finance chiefs meet to try to resolve differences over countries that are devaluing their respective currencies in order to spur economic growth and to endorse market-based exchange rates in a fresh effort to defuse mounting trade tensions before they hurt the world economy. We may see some volatility in domestic markets on account of expiry week.

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Stock specific activity is likely to play out as the results season is still going on. Nifty has support between 5950-5870 and Sensex between 19640-19200.Good corporate earnings amid falling dollar index are offering opportunities to bulls to keep the momentum in their favour, especially in base metals. 19-commodity Reuters-Jefferies CRB index, which serves as a broad benchmark for commodities investors, was up for a ninth straight week since Aug. 22.

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Monetary tightening by China could not give much impact on base metals prices. In case of bullions, trend is little different. Bullions prices retreated across the board as dollar index grew stronger and investors opted to sell some of their holdings for aprofit. For the time being bullions should move in a range. Market players appears cautious to some extent ahead of next month’s decision from the Federal Reserve about whether to take steps to stimulate the economy. Even energy pack is moving in a range on mixed fundamentals. Bulls are more active in agricultural commodities owing to the ongoing festive fever.

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Equity News Update

Economy

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•India’s food price index rose 15.53% while the fuel price index climbed 11.14% in the year to October 9. In the prior week, annual food and fuel inflation stood at 16.37% and 11.14%, respectively.

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Pharmaceuticals

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•Wockhardt has received tentative approval from the United States Food & Drug Administration (USFDA) for marketing the Fexofenadine HCI 60 mgplus Pseudoephedrine HCL 120 mg extended release tablets, which is used for treatment of seasonal allergic rhinitis without causing drowsiness.

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Oil & Gas

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•Reliance Industries is planning to take shutdown of the Crude Distillation Unit (CDU) No.1 and coker at Jamnagar refinery for maintenance and inspection for a period of three to four weeks starting from last week of October, 2010.

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•Oil and Natural Gas Corp (ONGC) has kicked off a `8,800-crore redevelopment of the southern part of its Mumbai High fields, using a cost-effective technology to  maintain output from the prime western offshore fields.

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Capital Goods

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•Larsen & Toubro (L&T) has received order worth 1,449 crore from DB Power for the Bhaskar Group company’s Chhattisgarh project. The Balance of Plant is the sum of all equipment for safe operation as well as the technical coordination of all concerned parts of a power plant.

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•BHEL has bagged contracts worth 35 crore to set up grid-interactive solar power plants of 1100 kW capacity at eight locations in the union territory of Lakshadweep. The Lakshadweep administration has also asked the company to renovate existing solar power plants of 800k Wat these islands.

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Realty/ Construction/ Infrastructure

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•Ashoka Buildcon Ltd has announced the completion and start of toll collection on its Bhandara toll road project on National Highway No. 6. The project, with a project cost of 535 crores, is the largest toll road project commissioned till date by Ashoka Buildron. With this commissioning, the company has 18 BOT projects under operation and 5 under construction.

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•IL&FS Transportation Networks Ltd has informed that the consortium comprising of 50:50 Joint Venture between the Company and Ramky Infrastructure Ltd. had been awarded a project by the National Highways Authority of India for Four Laning in the State of Assam & Meghalaya on Design, Build, Finance, Operate and Transfer (DBFOT) pattern. The Projectis on Annuity basis with a concession period of 20 years including construction period of 3 years. The cost of the Project as per loan agreements is 824 Crores and the semi-annual Annuity for the Project is72.51 Crores.

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INTERNATIONAL NEWS

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•US Industrial production was disappointing in September, declining 0.2percent, following a 0.2 percent gain in August. The September decrease came in notably below analysts’ median projection for a 0.2 percent advance. Capacity utilization edged lower to 74.7 percent from 74.8percent in August.

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•US Housing starts surprised on the upside while permits went in the other direction. Importantly, the single-family component is the one showing unexpected modest strength. Housing starts in September rose 0.3 percent after jumping 10.5 percent the prior month. The September annualized pace of 0.610 million units came in significantly above the market forecast for 0.580 million units and is up 4.1 percent on a year-ago basis.

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•Eurozone consumer confidence indicator remained unchanged in October from the previous month. The EC’s consumer confidence indicator for euro area was at minus 11 in October, same as in the previous month. The latest reading came in line with economists’ expectation. The consumer confidence index for the EU nations slightly improved to minus 11.6 inOctober from minus 11.7 in September.

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•UK retail sales volume including automotive fuel decreased 0.2% in September from August, it was smaller than last month’s revised 0.7% fall.Economists were expecting a 0.3% increase in September.

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•China’s gross domestic product grew 9.6% between July and September compared to the same period a year earlier. That is slightly above analyst expectations for a 9.5%, but marks a slowdown from the 10.3% expansion in the June quarter.

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CIL sets IPO record; to list on Nov 4

India’s IPO market created history on Thursday with state-owned Coal India share issuer in the becoming the biggest country, beating Reliance Power’s 2008 initial public offering.

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At the time of going to press, the CIL issue was subscribed 15.26 times, collecting Rs 2,36,113.28 crore. The shares will debut on the market on November 4, a day before Muhurat trading that marks Diwali.

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Responding to late rush from retail investors, the company postponed the close of the issue to 9 pm.

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At the upper end of the band, CIL will be the seventh biggest Indian company by market cap, after ONGC, State Bank of India, TCS, Reliance Industries, Infosys Technologies and NTPC, based on Thursday’s closing price. CIL’s Rs 15,474 crore IPO has overtaken Reliance Power’s Rs 11,700 crore issue.

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Buoyant demand from retail and wealthy investors on the final day added to the strong response from institutional buyers. This also signalled success for the government’s upcoming share sales.

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Retail investors, who often take cues from institutions in IPOs, had put in bids for shares 1.44 times or for 28,60,44,375 shares. Retail investors will get a five per cent discount on the final issue price.

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Wealthy individuals had separately bid for 13.89 times the shares available for them.

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Bidding for the mega IPO closed on Wednesday for qualified institutional buyers, including foreign institutional investors, mutual funds and insurance firms. And for the portion reserved for them, the issue was over subscribed by 24.70 times, lead by FIIs.

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The IPO has generated a demand of 493,38,72,050 shares from FIIs. Calculated at the upper end of the price band, this demand is worth Rs 1,20,879.86 crore and at the lower end worth Rs 1,11,012.12 crore. Even at the low end, the demand surpasses the record Rs 1.08 lakh crore pumped in by FIIs into the capital
market.

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India’s largest new issue came amid a flurry of big deals in Asia.

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At the top of its price range, Coal India would be valued at 15.7 times trailing earnings. The issue also got the highest demand for an Indian issue, helped by qualified institutional buyers.

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The demand from QIBs for CIL was at Rs 1,73,398 crore with 100 per cent application amount, compared with Rs 1,88,923 crore with 10 per cent margin for Reliance Power IPO. In case of Reliance Power, the QIB portion was covered 30.68 times.

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“The response to Coal India IPO, from all classes of investors, has surpassed even the most optimistic predictions. It has caught even the biggest optimists by surprise,” SMC Global Securities strategist Jagannadham Thunuguntla said in a note.

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He said the response puts the government on target to achieve its divestment target of Rs 40,000 crore in fiscal 2011 and even exceed it if other issues like the follow-on offering of Power Grid, Steel Authority of India, ONGC, Shipping Corporation of India, Indian Oil Corporation and IPO of Manganese Ore fall in place.

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The government, which has collected Rs 17,500 crore from public issues, including Coal India, may raise its divestment target and get over Rs 58,500 crore, SMC Capital added.

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At the upper end of price range, Coal India issue is worth Rs 15,474 crore and at the lower end it would fetch about Rs 14,211.81 crore.

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The upper band would also give it a market capitalisation of Rs 1.54 lakh crore ($34.7 billion).

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Meanwhile, the broader market recovered from a two-day slump and closed up 1.95 per cent at 20,260.58 points. Now all eyes will be on whether it will be a strong listing on the eve of Diwali.

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