BRIC countries’ stocks wilt; all indices precariously poised

The equity markets of the four fancied emerging nations have dipped below their 200-day moving averages. Are they signalling a fresh bout of global pessimism?

In what could be a telling signal, the major indices in the BRIC countries (Brazil, Russia, India and China) have now sank below their respective 200-day moving average (200 DMA). A lot of market players, including institutional investors, see the 200 DMA as the lakshman rekha which separates the bear market and the bull market. If the indices are unable to get above the 200 DMA, it could mean a period of disappointing growth since stock prices precede economic and corporate performance by months.

For the past year or more, stock markets in emerging nations have ridden piggyback on the optimism and ‘feel-good’ factor after having come out of the recession faster and stronger than the troubled Western nations. Decoupling theories had found a stronger voice after the stellar performance of developing markets relative to their struggling counterparts in the West.

However, recent developments in the Europe debt saga could have affected sentiments more deeply than one would imagine. The stock markets in the four leading emerging nations of Brazil, Russia, India and China (popularly known as BRIC) seem to have been torpedoed by the real impact of the $1-trillion bailout package put together by the European Union (EU).

The Shanghai Composite was the first BRIC country index to have started on a long steady decline, falling below its 200 DMA as early as January this year. China, which has been the epitome of emerging market growth, has continued to stumble badly in the past few weeks. While the Chinese government is proudly exhibiting a near 10% GDP (gross domestic product) growth, investors in Chinese markets are not participating in the euphoria. The Shanghai Composite’s sharp decline is in sharp contrast to the growth being advertised. This should bust any myths about stock markets moving in tandem with GDP growth of a country.
Echoing the Chinese markets, the Brazilian stock markets also dipped below their 200 DMA earlier this month. And today the Bombay Stock Exchange (BSE) Sensex fell 3% to 16,408. The Russian RTSI, which sank 4% today, had also moved below its 200 DMA a few days ago.

It is clear from the developments that the so-called BRIC markets are now treading a rocky terrain. Even a slight shock to global recovery at this stage would be enough to affect the balance and send the markets hurtling southward, panicking institutional investors. The only issue is whether this means that poor economic performance is bound to follow—something that nobody seems to fear.
In fact, consensus estimates say that analysts expect around 25% growth in revenues for India Inc in the coming year. GDP growth is expected to touch around 8.5% for the year 2010-11. But what nobody may have budgeted for is the fact that companies and economists may be far behind the curve. The stock markets may have already discovered the growth trajectory to follow—which doesn’t bode well for the economy.


SEBI caps fund of fund expenses at 2.5%

These funds will have to charge expenses under the prescribed guidelines or up to 2.5% of the net assets under management—including management fees, other expenses and charges

Market watchdog Securities and Exchange Board of India (SEBI) today in its board meeting has decided to cap annual expenses in fund of fund (FoF) schemes at 2.50%.

FoF schemes will have to charge expenses either under the provisions mentioned under the SEBI Mutual Fund Regulation 52(6), 1996, or up to 2.50% of the average net assets including management fees (not exceeding 0.75% of the average of net assets), other expenses and charges levied by the schemes.

An FoF scheme invests in other mutual funds unlike an equity or debt fund which typically invests in stocks of companies. This practise only increases the expense of an FoF scheme since the fund in which the FoF invests also carries recurring expenses like management fee, marketing and distribution costs and custodial fees. 

“The offer documents of companies raising capital shall contain disclosures from directors if they were directors of any company when the shares of the said company were suspended from trading by Stock Exchange(s) for more than 3 months during (the) last 5 years or delisted,” stated the SEBI circular.


Govt hikes price of gas sold by ONGC, OIL to $4.2 per mmBtu

While the move will help the state-run firms to break even in their gas business, it will result in a hike in electricity generation tariff and fertiliser production cost

The government today more than doubled the price of natural gas produced by state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd to $4.20 per mmBtu, at par with the rate at which Reliance sells its gas.

The Cabinet today approved an oil ministry proposal to raise the rate of gas sold to power and fertiliser firms from $1.79 per million British thermal unit (mmBtu) to $4.20, sources said.

ONGC and OIL will get $3.818 per mmBtu price for the gas they produce from fields given to them on nomination basis and after adding 10 per cent royalty, the fuel will cost $4.20 per mmBtu to consumers.

On top of the $4.20 per mmBtu, state gas transportation and marketing firm GAIL India would be allowed to charge 11.2 cents as marketing margin. Over and above this would be the taxes and other levies and pipeline transportation charges.

While the move will help the state-run firms breakeven in gas business, it would result in hike in electricity generation tariff and fertiliser production cost. But since fuel cost in power and fertiliser business is pass-through (wherein companies pass on the cost to consumers), it would not impact any of the companies that buy ONGC gas.

Also, GAIL which was not allowed to charge marketing margin would now benefit from the decision.

The government controls rates of gas, produced by ONGC and OIL from fields given to them on nomination basis (called APM gas). APM gas price were last revised in 2005 to Rs 3,200 per thousand cubic meters ($1.79 per mmBtu).

ONGC, in 2008-09, lost Rs4,745 crore in revenues on selling 17.71 billion cubic meters of gas at the government fixed rate.

The oil ministry had previously wanted to raise the gas price in stages to $4.20 per mmBtu. It wanted rates paid to ONGC and OIL to be immediately hiked Rs4,142 per thousand cubic meters ($2.32 per mmBtu). The consumer price at this would have been 10% higher at $2.55 per mmBtu.

Thereafter, in three more installments, the rates were to be hiked to $4.20 per mmBtu.

However, on the insistence of the finance ministry, the oil ministry withdrew the proposal and moved a fresh one seeking to raise the price of the gas under APM to Rs6,818 per thousand cubic meters or $4.20 per mmBtu, sources said.

Because of today's decision, ONGC would gain Rs 5833.78 crore more revenue a year.

The government has set $4.20 per mmBtu as the sale price of gas from Reliance Industries' eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $5.73 per mmBtu.


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