Posts Tagged ‘economic growth’

Weekly Update 9th – 13th August

The last week saw good amount of buying in U.S and other markets as the companies reported better numbers than the expectations in the result season. However the concerns remain over the U.S. recovery as the consumer spending, pending home sales and factory orders were all weaker than projected in June indicating moderation in the second half of the calendar year.

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In China, banking regulator has asked the lenders to conduct a stress test including worst case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively. The test highlights the government concern over the health of property market even after the regulator has tightened the real estate lending to crack down on speculation since mid April.

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Huge foreign money inflow, strong auto sales and manufacturing data together with good monsoon especially in the fortnight ending 4th August 2010 kept the markets on upbeat note. Life Insurance Corporation said that it plans to invest `2 trillion stocks and bonds in the current fiscal year. So far the Insurance major has invested 390 billion in the first quarter including 100 billion in equities.

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Approximately 2080 companies that have announced numbers have shown a mixed picture. The combined net profit of all companies fell 9.2% to 57,560 crore on 20.7% rise in sales to 7,07,925 crore in Q1 June 2010 over Q1 June 2009.

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Stock specific movement in market is likely to continue as some of the major companies like Bharti Airtel, State Bank, Reliance Communication, Suzlon, etc. are coming out with the results in the coming week.

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Pranab Mukherjee has already expressed concerns over the aggressive interest increase as it may moderate the economic growth. The Index of Industrial Production that saw some moderation in growth in May and also revised downward for the month of April is further expected to show some moderation in the month of June. Six core industries having weight of 26.68 percent in IIP have experienced a 3.4 percent expansion in June compared to 6.3 percent in the prior month. The data scheduled to be released on 12th August is likely to influence the markets and may help in gauging the central bank move in the coming months.

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Overall trend of world markets is up. Volatility indicators near lows are a sign of concern as it reflects that investors are not worried at all in taking positions. But till the trend of stock market is up, one should be playing on the long side only. US dollar index fall in last 3 months has also contributed to the rise of various asset classes. Nifty has support between 5350-5300 levels and Sensex between 17800-17600 levels.

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It appears that bulls are dominating bears in commodities. Market is looking very enthusiastic on the back of better results together with buoyant equity market. It is evident by the increased volume of commodity bourses across the globe. Noteworthy decline in dollar index has also supported buying in commodities.

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However, 80 is very good support for dollar index. The week is full of event risk. Traders may refrain to take large position in bullions before FOMC rate decision meeting. CPI and advance retail sales data of US will provide further direction to the base metals. Ongoing hurricane season is likely to keep crude oil in upper range. Severe drought and the decision to halt the export from 15th August to 31st December have stimulated fresh buying in grains and they are continuously moving up. Oil seeds and edible oil complex is looking promising and investors should utilized every dip as buying opportunity.

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Weekly Update 24th – 28th May

Global markets nosedived after German financial regulator introduced a temporary ban on naked short selling and naked credit-default swaps of Euro-area government bonds to provide stability to the financial system from the excessive price movements. The move shattered the confidence among investors that the various efforts like 750 bn euro package to tackle the situation are not enough to stem the crisis.

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EU countries efforts to cut down on their deficits by reducing spending & increase in taxes may lead to contraction in the region. The situation poses a serious threat to US & World economy as it could lead to slide in world trade & economic growth.

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According to Emerging Portfolio Fund Research(EPFR), investors withdrew $12 billion from European & US equity funds in the week to May 19. In order to tighten the US finance industry regulation, the senate approved a bill to impose restriction on banks proprietary trading & to create a consumer protection agency having powers to write & enforce rule to ban abusive lending. In another development Fed raised the US growth estimates to a range of3.2% to 3.7% this year & lowered forecast for unemployment & inflation. The European crisis has not only hit hard the equity markets but also commodities as well. With the commodity prices coming down especially oil, it has somewhat reduced the inflationary pressures building up in the economies.

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RBI deputy governor Subir Gokaran said “cautious pace is the best way to go and that is the stance,” after the Global economy outlook changes in the last six weeks. One the domestic positive development for the Indian Government that happened was 3G auction. The government managed to garner close to Rs. 70,000 crore, double the amount it anticipated in the budget estimates. This extra money is likely to lift the pressure on the market borrowing and will give some extra room to the government  for the developmental purposes. For the time being the markets are expected to remain in pressure & will eye on the monsoon to gauge how Indian economy will behave in the rest of year as agriculture is the mainstay for the overall development.

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Overall trend of world stock markets is down though in the short term they are oversold and a bounce can be expected in the coming week which would be more of a relief rally. Till the European markets do not stabilize, the recovery might be short lived. One should be cautious in such markets. Nifty faces resistance between 5040-5120 levels and Sensex between 16800-17100 levels.

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Volatility in the global financial markets is expected to calm down in near term which will lead to some recovery in base metals and crude oil. European Union finance ministers pledged to stiffen sanctions on high-deficit countries and ruled out setting up a mechanism to manage state defaults. Bullions may continue to trade on weaker path as decline in safe haven status can keep the prices pressurized.

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Weakness in local currency has curtailed the volatility in bullions in domestic bourses to greater extent. Key economic releases like US GDP will set the course this week for base metals. Bulls may again take center stage in spices while oilseeds counter may try to find direction taking cues from CBOT and BMD. Wheat and Chana can trade in range with marginal buying.

STEEL…….. INDICATOR OF ECONOMIC DEVELOPMENT

Due to most crucial necessity of steel in infrastructural and overall economic development, steel industry is often considered as an economic indicator of any country’s development. Steel seems to be heading for consolidation in the coming years as the global economic recovery is gaining momentum. In fact, China and India have reported huge rise in demand for steel with construction and auto sectors growing at a higher speed.

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Steel is not a single product. It is an alloy consisting mostly of iron, with a carbon content between 0.2% and 2.1% by weight, depending on the grade. There are currently more than 3,500 different grades of steel with many different physical, chemical, environmental properties. If the Eiffel Tower were to be rebuilt today the engineers would only need one-third of the amount of steel.

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Carbon Steel, Coated Steel (Galvanized & Color coated), billet, Electric Sheets, Flat Steel Products, Long Steel Products, slabs, Flat steel coil products(Strip) are the some of the finished steel.

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INDIAN SCENARIO

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According to the annual report 2009-10 by the Ministry of Steel, India is the fifth largest producer of steel in the world and it will become the world’s second-largest steel producer by 2012, more than doubling its capacity to 124 million tonnes (MT).

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Steel production rose 4.2 per cent to reach 60 MT in 2009-2010 and has an installed capacity of 72.76 million tones. According to the Ministry of Steel, Steel production in the 2010/11 (April-March) fiscal year is likely to be 65 million tones.

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The growth in steel consumption in any country is a positive sign for economic growth of that country. Due to improved demand from sectors like automobile, infrastructure and housing, India’s steel consumption rose 9.6 per cent to 4.14 million tonnes (MT) in April 2010. Exports continued to slide and dropped 34.8 per cent to 1.84 lakh tonnes in April, revealing the slow pace of recovery in main steel import destination–the US and the European markets.

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Some important facts

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?The domestic steel sector has attracted an investment of about US$ 238 billion.
This consists of nearly 222 MoU’s signed between the investors and state governments of Orissa, Jharkhand, Chhattisgarh and West Bengal.

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?Due to some government initiative in the budget and higher spending on infrastructure development, steel demand is likely to increase by 10 percent inthe fiscal year to March 2011. In the Union Budget 2010-11, India’s Finance Minister Pranab Mukherjee proposed to invest 1.73 trillion rupees on infrastructure sector, which will further promote the steel industry.

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Global Production and Consumption

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World production of crude steel in March 2010 rose by 31% to 120.3 million tonnes, the highest monthly total since May 2008. The total production in January to March is 342.4 million tonnes, 29% higher than the same period in 2009. This figures shows clearly that most countries are on path of rapid recovery from the recession. From January to March Chinese steel production increased by 24.5% to 158 million tonnes, Japan’s production jumped by 51% and South Korea increased by 29% .

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Current Scenario

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Steel makers in the country had increased their prices for the third time this year in April due to spiralling iron ore and coking coal prices. Iron ore prices in 2010 had almost doubled from last year’s levels to $120-160 a tonne. But the industry is hopeful that curbing exports would help reduce iron ore prices.

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Prices downgraded by around 13% in the month of April 2010, after hovering in broad range of Rs.25,130-30,150 per tonne. This is as compared to 2.06% gains in same month last year. Moreover, prices have fallen by around 4.50 percent since the year start SAIL had announced a price cut of Rs2,000 per tonne for its long products effective from 1st May 2010. However, this is not an indication of any future fall in steel prices. There is consumer resistance to further price increase but ultimately the pattern of global prices is still followed here and so we will also depend on the same.

RBI Increases CRR, Kicked off its War against Inflation

RBI Increases CRR, Kicked off its War against Inflation

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The Reserve Bank of India (RBI) has kicked off its war against inflation and build-up of inflationary pressures by announcing a surprise increase of 75 basis points in the Cash Reserve Ratio (CRR).

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Cash reserve ratio is the minimum liquid assets, banks have to retain against deposits or park with the central bank in the form of government securities.

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The CRR will be hiked in two stages : 50 basis points from Feb 13 and another 25 basis from Feb 27 – from the present 5 percent, Reserve Bank of India (RBI) Governor D Subbarao told.

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However, in a cautious move not to disrupt the money supply, the RBI left the key policy rates – repo and reverse repo – unchanged.

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“As a result of this increase in the CRR, about Rs.36,000 crore of excess liquidity will be absorbed from the system,” Subbarao added, as he presented the third quarterly update of the central bank’s monetary policy for this fiscal.

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Subbarao said the cut in excess liquidity will help anchor inflationary expectations and that the recovery process of the economy will be supported without compromising on price stability.

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As inflation was steadily growing and the economy was slowly returning to higher growth trajectory, it was expected that the RBI would tighten monetary policy.

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But the 75-bps hike, according to investors, is a “more hawkish” move than many expected.

The market had expected and was prepared for a 50-bps hike.

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Central bank has said the action was necessary as the “rapidly rising” food inflation was putting pressure on other sectors as well.

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India’s inflation jumped to 7.31 percent in December, 2009 from 4.78 percent in November, mainly driven by high food prices.

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The questions cropping up as a result of this move are :

-Will this move by the central bank going to check the inflation?

-Moreover, what implications this step holds for the economic growth?

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Stay Tuned for More.. 🙂

Govt. Pegged Economic Growth At 7.75 Percent

Govt. Pegged Economic Growth At 7.75 Percent

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The government today pegged economic growth for the current fiscal at 7.75 per cent, higher than all previous estimates, but said high food inflation remained a cause for concern.

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Moreover, Pranab Mukherjee also said that the government could unload surplus wheat and rice stocks for open market sale.

“There are enough wheat and rice stocks. Therefore, it is proposed to make open market sale for unloading of surplus stock,” he said.

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The food inflation after surging to 19.83 per cent in the third week of December softened to 18.22% as of the week ended December 26.

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The wholesale price based inflation was 19.835 in the previous week while potato remained costly increasing as much as 110% over the last year.

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This was followed by pulses whose prices jumped by 42.21% while vegetables turned expensive by 30.97% and onion prices rose by 40.07% on yearly basis.

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“A major area of concern is high food inflation; therefore collaborative efforts of the central and state governments are required to tackle this problem” Mukherjee said at the meeting.

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Economic growth stood at 7 per cent during the first half of the current fiscal, Mukherjee said.

He pegged GDP growth for the whole fiscal at around 7.75 per cent – a number that exceeds the initial estimates of the government as well as the RBI.

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Prime Minister Manmohan Singh last month stated that returning to a speedy expansion pace after a slow 2008 due to the global economic crisis; economy is expected to rise by 7% or a little more in the current fiscal.

🙂

Government Will Take Necessary Steps to Control Inflation

Finance Minister, Mr. Pranab Mukherjee, said on Tuesday that rising inflation is a major area of concern and the government will take necessary steps to control prices.

Mr. Mukherjee said Inflation has risen mainly due to the prices of food that have gone up in last month. According to the provisional data issued on Monday by the Ministry of Commerce and Industry, the reported inflation rate accelerated to 4.78% in November to 1.34% in October.

Pranab Mukherjee also said the government is taking necessary steps to cut its recorded fiscal deficit to 3 % of GDP after 2001/12, from 6.8 % estimated for the current financial year ending March 2010.

During 2005-06 and 2007-08, the economic growth was recorded at 9 % is mainly coming down due to Inflation and high financial loss, which is creating obstacles in the way of economic development.

Mukherjee told in parliament, “Prices are a major area of concern and we shall have to address it.” He also added “Whatever steps are needed, we will take those steps,”

The government agencies are paying high prices to farmers for buying grains and supply shortage of food items in the country, resulted in increase of inflation in the last four decades.

According to the latest government data released shows food inflation at 16.7 % in November, which have pushed the inflation to 4.78 %.

Taking the steps to control inflation, the Reserve Bank of India (BBI) has cut its policy lending rate by 425 basis points between October 2008 and April 2009, reduced Cash Reserve Ratio (CRR) and brought in liquidity in financial markets to control the increasing Inflation rate.

The government also increased the tax slabs and higher spending, which widened the fiscal deficit that has to be funded by a record borrowing of 4.51 trillion rupees ($96.6 billion) in 2009-10.

Mr. Mukherjee also said the deficit was “unsustainable”, and the government would reduce it to 5.5 % in financial year 2010-11 and to 4 % in 2011-12″ and thereafter, we shall have to come back to 3%.”

The government”s fiscal deficit has touched almost half of the full-year estimate in the first six months of FY”10. The fiscal deficit for the six-month period stood at Rs 1,97,775 crore, which is 49.3 per cent of the total estimate of Rs 4,00,996 crore for this fiscal. The fiscal deficit during the same period last year was at 77 per cent of the annual estimate.

It swelled to 6.2 per cent of the Gross Domestic Product (GDP) last fiscal against budget estimates of 2.5 per cent.

Company Insiders Sold Shares Worth Rs.15K Crores

Company Insiders Sold Shares Worth Rs.15 K Crores

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Company insiders, including top management and promoters, have sold shares in their firms worth about Rs.14,950 crore in the past three months.

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This was most perhaps done to cash in on the steep rise in prices during the recent rally and signaling that the market may be fully valued.

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“Insiders are cashing out some part of their shares.

That shows the market is no longer undervalued,” says Jagannadham Thunuguntla, head of research at SMC Capital Ltd.

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Since the Bombay Stock Exchange’s benchmark hit a low of 8,160 points on 9 March earlier this year,

the 30-stock Sensex, India’s most widely tracked index, has risen 103.81%

as foreign investors injected $15.42 billion (Rs 72,165 crore) into the markets, enticed by the prospect of economic growth.

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🙂

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While major Western economies are barely emerging from a deep recession,

India’s economic output is expected to expand at least 6%, according to estimates by the Reserve Bank of India (RBI), making it the second fastest growing major economy.

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🙂

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Insider sales include those by promoters, top management such as chief executive officers and chief financial officers, as well as sales of treasury stock.

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While insider trades are reported to the stock exchanges, only the number of shares is disclosed.

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Often, such sales take place over a period of time.

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SMC Capital has played a role in the compilation of the data.

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Insider transactions also include share purchases.

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On an overall basis, company insiders bought shares worth around Rs 5,194 crore during the same period, or around one-third of the Rs 14,950 crore of shares sold.

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🙂

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A large part of these have happened in the last six months because people are still sceptical about the sustainability of the recovery.

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“No one has any conviction on how long this bull market will last,” said SMC’s Thunuguntla.

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🙂

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Indeed, with the pace of economic recovery in the West still under question, a potential debt default by Dubai government-promoted entities rocked global markets last week,

sending the Sensex down 3.3% in just two days of trading.

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