Bonds, Currencies & Commodities
Cotton farmers, traders hoarding stocks in the hope of higher prices

Prices of cotton that are at record highs are expected to stay firm in the near future due to a global shortage

Cotton prices, which have touched record highs recently, are expected to stay firm as farmers and traders hold on to supplies in local markets, in anticipation of higher prices in the international markets.

"On anticipation of high prices due to a deficit of the commodity, farmers and traders prefer to hold stocks. This has led to slow arrivals in the market when demand in the domestic and international markets is very high. If this situation continues, the prices will not come down easily," said a senior official of the Maharashtra State Co-operative Cotton Growers Marketing Federation.
Like other commodities such as copper and rubber, the prices of cotton have surged to historical levels, as production has been lower in leading cotton-producing countries like Egypt, Pakistan, China, Bangladesh and Australia. On 11th February the March cotton contract on the benchmark Inter Continental Exchange (ICE) rose to $1.9455 a pound, a historical high on the ICE. In the domestic market, prices of cotton have more than doubled in the past year to Rs60,000 a candy (356 kg).

"Cotton demand has been high across the globe. But carryover stocks in the international markets are somewhere around 8.8 million metric tonnes. The three years' carryover figures were about 11.5 to 12 million metric tonnes, which means that the international cotton market is facing an acute shortage of the commodity and this has led to a rise in prices," Subash Grover, chairman and managing director of the Cotton Corporation of India (CCI), told Moneylife. "I think, the next year carryover stocks would be about 9.6 million metric tonnes." CCI is a government undertaking with 300 cotton procurement centres across the country.

Taking a cue from the soaring prices in the international markets, cotton growers are holding their stocks on anticipation of higher prices. After having recovered their production costs-as prices have doubled in just a year-farmers can afford to sit on stocks, while traders also pile up inventories aiming to get higher values. The total arrivals of cotton inched up by 5.4% to 24.4 million bales till the middle of this month.

The Ministry of Agriculture, in a recent estimate, said cotton production in the country in 2010-11 (June to July crop year) would be 33.9 million bales, which is an almost 40% increase from 24.2 million bales in the previous year. The Cotton Advisory Board also has raised its estimates for the crop year to 32.9 million bales from 32.5 million bales.

However, it is estimated that domestic consumption will increase by 10% to 27.5 million bales in the period September 2010-October 2011 from 25 million bales in the previous year.
But reduced supplies in the international markets after floods in China, Pakistan, Bangladesh and Australia has fuelled the price rise in the domestic markets also. Cotton prices have surged nearly 30% in just two months in the domestic markets. Prices in January which were at around Rs42,000 per candy have touched Rs51,000 in February. This compares with Rs27,000-Rs28,000 a candy a year ago.

"International prices are obviously influencing domestic prices, and at the same time the demand from end-producers of yarn and cloth is robust," Mr Grover said.


World Bank pegs India’s growth at 8.5-9%

The estimates are almost in line with those made by the Prime Minister's Economic Advisory Council (PMEAC), which expects the gross domestic product (GDP) to expand by 8.6% this fiscal and 9% in 2011-12

New Delhi: Terming India's economic recovery as "robust", the World Bank today projected the Indian economy to grow by about 8.5%-9% in the current and next financial year, reports PTI.

The estimates are almost in line with those made by the Prime Minister's Economic Advisory Council (PMEAC), which expects the gross domestic product (GDP) to expand by 8.6% this fiscal and 9% in 2011-12.

In its India Economic Update released today, the World Bank said that strong headline GDP growth and quarter-on-quarter results indicate that "economic recovery is robust".

"Looking forward, GDP growth looks set to regain the pre-crisis trend of around 8.5%-9% in this year and the next (FY 2011-12)," the multilateral lender said.

In the first six months of this fiscal, the economy rose by 8.9%.

According to the World Bank, the overall wholesale price inflation is likely to come down to 7% by March end.

Inflation is likely to decline further in the next fiscal, "although uncertainty over international commodity prices persists," it added.

The PMEAC yesterday revised upwards its inflation forecast to 7% by March end from earlier estimate of 6.5%.

"The RBI is likely to continue its policy of cautious rate hikes in a highly uncertain environment," the bank noted.

It said that while inflation has become more broad-based, capacity utilisation, industrial production, import, and credit indicators do not point to overheating.

"The signals are, therefore, not clear whether core inflation is caused by more general demand pressures, which would best be addressed with more aggressive policy tightening, or by second round effects of earlier food and commodity price shocks, for which the current monetary policy stance is likely to be adequate," the multilateral lender said.


Venture capitalists investing more in restaurant chains

The latest foray in this sector is from TVS Shriram Growth Fund, which has invested an undisclosed sum in Indian Cookery Private Limited, promoted by celebrity chef Sanjeev Kapoor & Better Value Brands. But analysts say that there could be some hiccups in this line of business

Is 'dining experience' the emerging investment interest? With many venture capitalists taking the restaurant-chain route, it seems to be that way. But experts say it is better to keep a watch for possible pitfalls.

The latest investment in the sector comes from Chennai-based TVS Shriram Growth Fund, which has gone on to invest an undisclosed amount in Indian Cookery Private Limited (ICPL), the restaurant business promoted by chef Sanjeev Kapoor & Better Value Brands. This is TVS Shriram's second deal in less than three months, the first being an investment of Rs50 crore in Om Pizzas & Eats Private Limited, which is the franchisee of the international chain of Papa John's Pizza, Chili's Grill & Bar and The Great Kabab Factory.

 "The optimism among investors is because of the success of Jubiliant Foodworks, the franchisee for Dominos Pizza," said an analyst from Angel Broking Services.

Moreover, there is a growing demand among Indian customers for fine dining restaurants and gourmet food. Incidence of eating out among them is also increasing. No wonder, investors are viewing the restaurant industry as a viable place to be.

Last year, the Kotak Mahindra Capital-backed Jubiliant Foodworks' IPO (initial public offering) was a runaway success. Jubiliant Foodworks' scrip has gone up from Rs229 in February last year to Rs545.95 this year, marking a 138% increase.

This offering was followed by talks of an upcoming IPO worth Rs200 crore for Speciality Restaurants that owns Mainland China and the Oh!Calcutta chain.

However, some experts say that Jubiliant, and for that matter, other pizza franchisees could succeed because these outlets are mainly takeaway facilities. Takeaway restaurants are classified as a different category by Eurometer International. Unlike full service restaurants, they have minimal investments in real estate, provisions, staff and also low wastage.

Restaurants, on the other hand, suffer more because they have to keep more perishable items in store. Real-estate management becomes an issue in case of expansion. Many hoteliers agree that getting a viable location, especially in a busy city, is not a piece of cake.

The other high-profile investments have been that of Helion Venture Partners in Mast Kalandar, an Indian 'quick-serve restaurant' (QSR) chain in October 2010, and Hong Kong based Saif Partners increasing their stake from 12% to 20% in Speciality Restaurant. Matrix Partners invested in Yo! China, while Accel Partners invested in Kaati Zone, a Bengaluru-based quick service restaurant chain.

The market is abuzz about Indian Equity Partners investing some $100 million in BJN Group and Sagar Ratna.

According to National Restaurant Association of India (NRAI), investors are now serious about the potential of the restaurant market. It is said that the Rs43,000 crore restaurant industry is growing at 5% per annum, and of this, only 20% is the organised sector, which is growing at an incredible 20%-25% annually.

According to Eurometer International's 'Consumer Food Service in India 2010' report, the chain restaurant industry was valued at some Rs72,624 crore in 2010, and  will go up to Rs88,107 crore in 2011-2012.

And these new investments are apparently helping these restaurant chains strengthen their presence and aid their expansion. Mainland China already has a strong presence in India with 74 outlets, and plans to open 100 outlets by 2011-end. Like ICPL, Mainland China wants to go to places like the Middle East, Sri Lanka and the United Kingdom (London). These investments also provide them with the required logistical support and realty spaces. The promoter of Speciality Restaurants, Anjan Chatterjee, had admitted earlier that lack of logistical support had hindered his plans of expanding the Oh!Calcutta chain.

However, there is also the danger of a bubble being created. The number of QSRs, some reports claim, is increasing by 30%-35% annually. "If that is the situation, and if the restaurant euphoria gets too high, we will have a problem," said the analyst quoted earlier.

"While the restaurant sector looks promising, it is too soon to gauge the benefits. Moreover, there are many chains, but not necessarily all have been successful. It is especially true for lesser-known brands or those which do not have a pan-India appeal. And it is important to have a distinct identity and consistency in what they  offer-both in culinary matters and otherwise. We see a lot of overlap in that respect," added the analyst.

Moreover, niche restaurants require skilled staff: both in the kitchen and in service. Lastly, with the vast palette before them, customers are more inclined to experiment with different cuisines and different kinds of restaurants, and there are fewer chances of them sticking to one particular brand.

So let us wait and see how the buffet turns out to be.


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