Weekly Update 26th – 30th July 2010

The markets witnessed good buying in the week gone by as the corporates from U.S. to Europe showed good performance raising the confidence in the strength of the global economic growth. Continuous buying by the foreign institutions and the strength in the developed markets helped stocks to scale 29 months high. U.S. Fed chief Ben S. Bernanke said that central bank would take additional action if the world’s largest economy does not continue to improve.

.

European Banks Stress test result showed that from a sample of 91 European banks, representing 65% of the European market in terms of total assets, 7 banks would see their Tier 1 capital ratios fall below 6%. The focus of the test was mainly to assess the ability of the banks to absorb possible shocks on credit and market risks, including sovereign risks over a 2 years horizon, until the end of 2011. The test revealed that the aggregate Tier 1 ratio, used as a common measure of banks’ resilience to shocks, under the adverse scenario would decrease from 10.3 percent in 2009 to 9.2 percent by the end of 2011 (compared to the regulatory minimum of 4 percent and to the threshold of 6 percent set up for this exercise). However investors are still ambiguous about the credibility of the test as it ignores the majority of banks’ holdings of sovereign debt assuming a case of no default by Greece or any other European country.

.

India Inc. has so far shown good performance. The net profit of 339 companies that have declared results has grown by 25.5 percent and sales have shot up by 17.8 percent compared to corresponding quarter last year. The annual monsoon rains improved 24 percent from the deficit in the previous week, but were still 17 percent below normal in the week to 21July 2010, as per the data of the India Meteorological Department on Thursday, 22 July 2010. The seasonal monsoon rains during 1 June to 22 July 2010 were 12 percent below normal.

.

The expectation of another 25bps hike in policy rates has already been built in the market. Market would take a cue from what RBI says in its monetary policy on 27th July about the health of domestic market and the steps in its act of balancing growth while anchoring inflationary expectations.

.

Trend of Indian Stock Markets is up since a month and now the world markets are also participating in the rally. The rise in Base metal commodities is giving more steam to the rally as that is a reflection of increasing demand for metals in the industry. Nifty has support between 5315-5250 levels and Sensex between 17700- 17500 levels.

.

Better than expected earnings amid optimistic equity market bestowed the much needed direction to the commodity market and thus it headed for biggest gain since March. In the meantime, dollar is going down and likely to trade in a negative territory as investors are moving back to the risky asset, which is appearing more promising in current context. Gold is narrating the same story and it is moving in a range with downside bias. Gold silver ratio has declined as silver outperformed gold, getting support from terrific rise in base metals prices. Energy complex has ignored the negative news and shore up on better results and strong technicals. But yes, it’s a time to book profit in spices as they are overbought now, especially pepper.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,http://www.smctradeonline.com
,http://www.smcwealth.com

Weekly Update 19th – 23rd July 2010

The concerns over recovery in global economy resurfaced in investors mind as China economy grew 10.3 percent in the second quarter showing moderation from 11.9 percent expansion in the first quarter. In U.S., consumer confidence dropped in July to the lowest level in the year to 66.5 from 76 in previous month and factory output too fell by 0.4 percent in June.

.

The minutes released by the office of the Federal Reserve said that “The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside”. The statement and weak data only added to the worries and led to the decline in most of the global markets.

.

India’s Industrial Production growth came surprisingly low to 11.5 percent in May from a year earlier and the April growth was revised downward to 16.5 percent from 17.6 percent. It is expected that the Industrial Production will remain close to double digits as some of the leading indicators like vehicle sales remained buoyant in June.

.

Keeping a vigil on the liquidity and in order to ensure smooth credit lines for both government and corporate to sustain the growth momentum, RBI has further extended the second liquidity adjustment facility (SLAF) on a daily basis till July 30, 2010. Strong credit growth in Banking system and Industrial production together with high food inflation may influence RBI to raise policy rates by another 25 bps in its first quarter review on 27th July.

.

The latest statement by the IMD that the monsoon up to 15 July has so far been 14 percent below the long period average is a cause of concern.July, especially being the most important month for sowing the Kharif crops has led to the alteration of earlier beliefs that going ahead food inflation will moderate.

.

Mostly world markets are in downtrend though Indian stock market is still in uptrend. The base metal commodities are not able to rise which is showing the underlying uncertainty in the markets. One should be cautious in such markets.

.

Nifty has support between 5280-5220 levels and Sensex between 17600-17400 levels.Indian markets have gone up substantially in last one and half month and dollar index has fallen sharply from higher levels but the Indian rupee has not moved much which is a sign of concern as rupee should have strengthened in such an environment.

.

Lack of clarity with reference to the direction of world economy is painting a hazy picture for commodity market. Even uncertain outcome of economic releases and result of second quarter is giving little direction to the commodities. Investors are refraining to make large position in current situation. This week, we have important data form UK and Canada. Housing data can give further direction to base metals. Bullions can trade in a slim spread. Expiry of July contract in NCDEX may result in more volatility in all agro commodities. After witnessing a multi week high some spices may see a pause in rally.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,http://www.smctradeonline.com
,http://www.smcwealth.com

Weekly Update 26th – 30th April 2010

Domestic markets started the week on a negative note on the back of the Greek debt issues and Goldman Sachs fraud issues, but managed to close in the positive terrain supported by firm US markets in line with less than expected hike in Policy Rates & Cash Reserve Ratio by RBI to tame the inflation; Policy rates and CRR increased by 25 bps each. The food price index rose 17.65% in the 12 months to April 10, marginally higher than an annual rise of 17.22% in the previous week. Moreover IMF announcement of India`s growth at 8.5% for the calendar 2011 boosted the sentiments.

.

.

Additionally, announcement of government recapitalization of PSU banks stimulated banking sector and banking stocks were among the major gainers of the week. Good corporate numbers, expectation of good monsoon together with buying by foreign institutions kept the momentum intact for the rest of the week. Going forward market participants globally would be closely watching G20 finance chiefs plan to withdraw economic stimulus as the recovery strengthens.

.

.

The IMF this week said that rising government debt is one of the biggest threats to the world economy.

.

Forecast of normal monsoon season by Indian Meteorological department may keep the sentiments positive in the coming week but volatility may rise ahead of the expiry. On the global front, the UK’s economy grew at a slower than anticipated pace in the first quarter. In US, sales of new homes surged by 27 percent in March and orders for most durable goods climbed, indicating the U.S. economy is speeding ahead into the second quarter. Greece troubles that kept the markets jittery especially for the payments approaching in the month of May came to an end after it said that it has sought a relief aid from the European Union to save it from a default.

.

.

US stock markets kept the rally intact which held the other world markets and did not let them fall.

.

Shanghai remained under pressure as commodities saw some pressure and profit booking at higher levels. Indian stocks are seeing more strength in cash stocks and banking stocks. Nifty has support between 5200-5100 levels and Sensex between 17400-17200 levels.

.

.

This week is full of event risk, especially from US economy side. Gradually, commodity is retreating from the higher levels but it will be too early to say that it is giving a clear indication for the approaching time. But yes, upside is limited.

.

.

Negative expectation of US GDP figure for the first quarter may hammer the prices. If dollar index trades above the level of 82 then it would keep gold to be in sideways territory. Copper saw three weeks nonstop downside and it is expected to see more downside. Range trading in crude oil is indicating the saturation at the higher levels and market needs big news to see further upside..

Foreign Investors Protest India’s Tax Regime

Foreign Investors Protest India’s Tax Regime

In a demonstration of solidarity in economic diplomacy, the ambassadors and high commissioners of seven rich countries have jointly protested against features of, what they term, India’s “retrograde’’ tax regime.

😦

The ambassadors of the US, the Netherlands and Spain, high commissioners of the UK, New Zealand and Australia and the head of the European Commission delegation have expressed their anxiety over the “growing unpredictability in India’s tax policies’’ and written to finance minister Pranab Mukherjee seeking an appointment.

They said India’s policies were creating an “unquantifiable risk in investment planning’’.

The letter has been marked to commerce minister Anand Sharma, deputy chairman of Planning Commission Montek Singh Ahluwalia and cabinet secretary K M Chandrasekhar, among others.

🙂

The concern pertains to the application of punitive tax liabilities on deals with retrospective effect.

Their anxiety was triggered by the $2 billion tax controversy involving Vodafone’s $12 billion buyout of Hong Kong-based Hutchison’s stake in Hutch-Essar.

And now include tax troubles in deals such as

SabMiller’s acquisition of Foster’s Indian beer business,

Aditya Birla Nuvo’s acquisition of shares in Idea Cellular from AT&T Mauritius,

transfer of GECIS Global (Luxembourg) shares by GE to a consortium of US private equity funds and,

Vedanta’s acquisition of Sesa Goa shares held by Mitsui through a UK holding firm.

🙂

In other words, what was until now seen as a problem between tax authorities and Vodafone has now escalated into a standoff between the governments of seven nations, including the US and the EU.

Source : Times Of India 14/10/09

Indian Small Car Exports to Europe Started Decreasing !

As scrap page schemes in several European markets are set to lapse,exports by Indian small-car producers have started declining.

As scrap page schemes in several European markets are set to lapse by the year-end, exports by Indian small-car producers such as Maruti Suzuki and Hyundai Motor have started declining.

😦

However, on the back of incentives offered by Germany, France and the UK in order to help owners of older cars and vans buy new fuel-efficient vehicles these automakers saw exports increase 35-40 % in the last few months.

Moreover, Germany and Austria concluded their scrappage programmes and other countries are likely to end their schemes by December hence as exports to Europe start decreasing, Indian carmakers have started looking at non-European markets.

🙂

Additionally, till September 30, Maruti Suzuki had exported over 58,500 units,
with A-Star accounting for 33,500 units,
Nissan Pixo at over 25,000 units and
other models contributing about 7,900 units
while its exports of 1.3 lakh units in 2009-10
against 70,023 units in the last fiscal year.

However, Maruti Suzuki’s exports is not likely to cross 1.16 lakh units this year as many European countries have withdrawn their scrappage schemes.

🙂

On the other hand, Hyundai Motor India (HMIL) too benefitted from additional European export orders where more than 50% of their exports are targeted at European countries with Germany accounting for the maximum and aims to export about 2.7 lakh units in 2009-10 against 2.45 lakh units last year.

🙂

Further, in order to qualify for the scrap page benefit, the emission levels in the new car should be below 160 g per km while Germany had created a € 5 billion fund for the old-car scrappage scheme, doling out € 2,500 incentive for a fuel-efficient new car.

France had set aside € 220 million, offering € 1,000 and a deferred tax benefit of up to € 5,000 for a new car.

🙂

Read Full Story on Economic Times.

India Crossed the $100 Billion Mark in FDI :)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI) through equity confirming its rising profile as a safe and sound investment objective.

🙂

However, 44% of the money came through Mauritius as investors wanted to take advantage of India’s double taxation avoidance treaty with the island nation.

🙂

Moreover, the cumulative FDI inflows since 2000 and up to July 2009 amounted to $100.33 billion while the inflows in the first 4 months of the current fiscal were $10.49 billion and the other big investors included Singapore, the US, UK and the Netherlands.

🙂

Additionally, it is said that FDI’s main impact comes from new technology, new managerial capabilities and new benchmarks in corporate functioning whereas India reached the $100 billion mark at a time when the global financial crisis has had a dampening impact on FDI flows which are expected to fall this year.

Further, it is said that the global FDI flows will decline by 30% in 2009 reviving only marginally during the next year.

Although declining, FDI flows to developing countries proved to be more flexible than other capital flows such as portfolio investment and bank lending, the main reasons being that FDI is more of a long term nature than capital flows.

🙂

On the other hand, India’s services sector received 23% of the cumulative equity FDI inflows followed by computer software, hardware, telecommunication and real estate.

🙂

ECONOMIC INDICATORS WITH A FOCUS ON STOCK MARKETS – Part 1

An economic indicator is simply any economic statistic which indicate how well the economy is doing and how well the economy is going to do in the future.

An economic indicator is simply any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicate how well the economy is doing and how well the economy is going to do in the future.

🙂

Investors use all the information at their disposal to make investment decisions.

If a set of economic indicators suggest that the economy is going to do better or worse in the future than they had previously expected, they may decide to change their investing strategy.

🙂

Economic indicators can be categorized on the basis of Timing

Economic Indicators can be leading, lagging, or coincident which indicate the timing of their changes relative to how the economy as a whole changes.

Leading:

Leading economic indicators are indicators, which change before the economy changes.

Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession.

Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future.

Coincident:

A coincident economic indicator is one that simply moves at the same time as the economy does.

The Gross Domestic Product is a coincident indicator.

Lagged:

A lagged economic indicator is one that does not change direction until a few quarters after the economy does.

The unemployment rate is a lagged economic indicator, as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve.

🙂

Relationship Between Stock Markets and other economic indicators

We have observed the relationship between stock markets and different categories of economic indicators such as :

1) GDP (It’s a measure of Total Income, Output and Spending of the economy)

2) Industrial Production and Capacity Utilization (It indicates the Production and Business Activity in the economy)

3) Stock markets

All these economic indicators are procyclic (or procyclical) economic indicators.

A procyclic indicator is one that moves in the same direction as the economy.

So, if the economy is doing well, this number is usually increasing, whereas if we’re in a recession, this indicator is decreasing.

🙂

Stock market is also a procyclical and a leading indicator.

We have studied the correlation between the GDP growth rate and stock price movements of Japan, Germany, UK and USA and India.

All the data indicates that there is a positive correlation and real share prices changes leads the GDP growth rate.

However, there is time lag ranging from at least 6 months to 1 year.

Lower the correlation between the two, higher is the time lag.

🙂

Real share price movements appeared to have the best predictive ability on GDP growth and lead the changes in economic activity.

Therefore, we can say that, stock markets are the reflection of the future performance of the country’s corporates.

So if the corporate performance is expected to improve, the markets account for the upside in advance.

This implies stock markets are leading indicators of the economic growth of the country.

🙂

Next Blog we would touch upon issues like what current economic indicators reflect about the state of Indian and global economy in coming months 🙂

Moreover what are the general effects of the stock maket indices on the economic performance of the country.

Stay Tuned for more and more on this 🙂

However For More latest Industry,Stock Market and Economy News Updates, Click Here

US Economists feel Positive, says Worst is Behind :)

Among the world’s large economies, UK, which is the seventh largest and Italy, the tenth, remain in recession, like the US.

The UK economy shrunk 0.8% in the second quarter, while Italy’s was down 0.5%.

😦

Unlike in the UK, however, economists in the US believe the worst may be behind them.

‘‘It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, may be September,’’ Nobel laureate Paul Krugman was quoted as saying.

🙂

There is evidence that his is not undue optimism.

The pace of job losses in the US slowed more than forecast in July and the unemployment rate dropped for the first time in more than a year.

US GDP also shrank by just 0.3% (equivalent to an annualized 1%) in the seconnd-quarter after a 6.4% drop in the previous three months.

🙂

That explains why US Federal Reserve is willing to bet that the nosedive the economy had witnessed in recent months is behind it.

🙂

Over the last two years, the US has witnessed its worst financial crisis in decades, but that could be ending, which is good news for the world since it accounts for a fifth of global GDP.

🙂

France and Germany also announced unexpected returns to the growth path, which means that four of the world’s five largest economies and six of the top 10 are now not in recession.

🙂

Adding to the sense of optimism, the US Federal Reserve left rates unchanged, saying that the world’s largest economy was showing signs of levelling out.

🙂

Among the five largest economies of the world, measured in purchasing power parity (PPP) dollars — which is more of an apples to apples comparison — China and India are already growing at healthy rates, although lower than their own pace for the last few years.

🙂

Japan too has climbed out of recession and so has Germany.

These economies and the US account for 47% of world GDP in PPP terms.

🙂

Among the world’s other large economies, Brazil is also now no longer in recession having grown by 1.5% in the second quarter.

Among the world’s large economies, UK, which is the seventh largest and Italy, the tenth, remain in recession, like the US. The UK economy shrunk 0.8% in the second quarter, while Italy’s was down 0.5%.

Unlike in the UK, however, economists in the US believe the worst may be behind them. ‘‘It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, may be September,’’ Nobel laureate Paul Krugman was quoted as saying.

There is evidence that his is not undue optimism. The pace of job losses in the US slowed more than forecast in July and the unemployment rate dropped for the first time in more than a year. US GDP also shrank by just 0.3% (equivalent to an annualized 1%) in the seconnd-quarter after a 6.4% drop in the previous three months.

That explains why US Federal Reserve is willing to bet that the nosedive the economy had witnessed in recent months is behind it. Over the last two years, the US has witnessed its worst financial crisis in decades, but that could be ending, which is good news for the world since it accounts for a fifth of global GDP.

Some light showed up at the end of the recession tunnel on Wednesday as France and Germany announced unexpected returns to the growth path, which means that four of the world’s five largest economies and six of the top 10 are now not in recession.

Adding to the sense of optimism, the US Federal Reserve left rates unchanged, saying that the world’s largest economy was showing signs of levelling out. Both France and Germany had been predicted by most economists to face a decline of about 0.3% in their GDPs for the second quarter (April-June) of 2009, but they surprised themselves and the rest of the world by announcing that they’ve actually recorded growth of 0.3% each.

Among the five largest economies of the world, measured in purchasing power parity (PPP) dollars — which is more of an apples to apples comparison — China and India are already growing at healthy rates, although lower than their own pace for the last few years. Japan too has climbed out of recession and so has Germany. These economies and the US account for 47% of world GDP in PPP terms.

The Eurozone as a whole is also now projected to have contracted by just 0.1% compared to the 2.5% fall in GDP in the first quarter (January-March). The growth rates reported by Germany and France may seem like nothing to get excited about, but considering that German GDP shrunk by 3.5% in the first quarter and France’s by 1.3%, it is quite a smart turnaround.

Among the world’s other large economies, Brazil is also now no longer in recession having grown by 1.5% in the second quarter.