Investor wealth doubles to over Rs60 lakh crore in FY10

With stock markets taking a positive leap in fiscal 2009-10, investors' wealth almost doubled to cross the Rs60 lakh crore mark led by strong contributions from Reliance Industries and TCS, reports PTI.

Investor wealth, calculated from the combined market capitalisation (m-cap) of all the listed companies on the Bombay Stock Exchange, expanded by over Rs30.32 lakh crore during the reviewed fiscal to settle at Rs 61,65,618 crore. The combined market valuation of all the listed companies was Rs 31,33,086 crore at the beginning of the fiscal on 1 April 2009.

According to the analysis of the top 10 companies in terms of valuation, Reliance Industries emerged at the top with an addition of Rs1,02,872.17 crore to its m-cap during the financial year 2009-10. It added Rs1,02,872.17 crore to its market valuation, taking its total m-cap to Rs3,51,446.01 crore for the fiscal year ended 31 March 2010. Reliance Industries had a total market valuation of Rs2,48,573.84 at the beginning of the fiscal on 1 April 2009.

Top outsourcing firm TCS also saw its valuation swell by Rs99,552.98 crore to Rs1,52,818.18 crore in the same period.

For the entire financial year, the Sensex has registered a gain of 7,819 points, up 80.5% from 9,708.50 points as on 31 March 2009, to settle at 17,527.77 at the end of trade.

Two state-run firms—ONGC and NTPC—together added Rs86,645.05 crore to their m-cap during the said period.

ONGC saw its valuation surge by Rs63,021.81 crore, and NTPC by Rs23,623.24 crore.

Trading firm MMTC added Rs82,637.75 crore to its m-cap, while IT bellwether Infosys Technologies added Rs71,268.28 crore. The country's largest public sector lender SBI saw its m-cap swell by Rs63,808.61 crore.

Private telecom services provider Bharti Airtel added Rs1,693.40 crore to its m-cap and power equipment maker BHEL saw its valuation surge by
Rs44,712.76 crore.

Iron ore major NMDC saw an increase of Rs54,118.15 crore in its m-cap.


Commodities markets, ETFs and emerging economies

Global commodity assets under management have increased to about $235 billion by late 2009 compared with a mere $6 billion-$10 billion in 2000

Diversification is one of the main tenets of safe investing.

Since different asset classes are not supposed to correspond, diversifying your portfolio should allow you to hedge against losses in one category or profit from another.

According to two American finance professors, commodities over the period between 1959-2004 were not correlated with the stock market.

Commodities did well when stocks did not and commodities did poorly when stock markets were rising. Of course, during the recent market collapse, diversification didn’t help, because all asset classes including commodities and stock markets collapsed together. What happened? Two things: exchange traded funds (ETFs) and emerging markets.

Commodities markets all have a central problem, inflexibility of supply. In rising stock markets when demand is high, companies do not seem to have problems fulfilling the demand by issuing debt or stock. Governments can issue mountains of debt and investment banks can issue derivatives with a few key strokes.

This is not true of commodities. It can take years to drill a new well, develop a new mine or plant new fields. So with supply being inelastic, even small changes in demand can send the price soaring and detach it from underlying economic projections.

One of the most recent changes to the commodities markets has been ETFs. ETFs solve some major problems with commodities investing. Before ETFs you had two choices: options and commodities companies like an oil or mining company.

Each had problems. ETFs are not perfect, but they do offer good solutions to these problems. So the money flowed in. Global commodity assets under management increased to about $235 billion by late 2009 compared with a mere $6 billion-$10 billion in 2000.

Commodities markets used to be the province of a few professional players. These included commodities producers and consumers trying to hedge and a few sophisticated speculators. Now it is a huge casino made up of every type of investor.

The ETFs went from tracking the market to being the market. Gold ETFs own more of the metal than China. Two ETFs have accumulated more than 100,000 ounces each of platinum and palladium.

In a market of only about 6 million ounces, a 100,000-ounce swing is big enough to result in large price swings. So speculative frenzies driven by cognitive biases can easily overwhelm economic realities.

The other change in the commodities sector has been emerging markets. It is not news that many of the major commodities producers have been emerging markets. Now many of the commodities consumers are also emerging markets. In time, commodities markets could probably adjust to this change in supply and demand except for one thing. Both sides are heavily dominated by State-owned companies. {break}

State-owned companies are creatures of the state. Regardless of the country, they all function for political reasons, not for profit. They are not, nor do they have to be, transparent. They are usually powerful enough to write their own laws. The result is a lack of timely, complete, or accurate information. Often there is simply no information at all and they can change the rules at any time.

China represents a particularly good example. Buying by Sinopec and PetroChina, and China National Petroleum Corp, massive consumers, most likely caused the oil price spike in the spring of 2008.

Massive stockpiling of copper by Chinese companies pushed up the price of copper in 2009.

ExxonMobil is the largest private oil company in the world, but it only ranks 14th among global oil companies. The rest of the producers, many of which are also consumers, are State-owned. Chile’s State-owned copper company might be required to sell more to pay for earthquake reconstruction.

So not only are commodities markets being changed by ETFs and emerging countries, now there is the combination of the two, which could potentially lead to some real trouble.

Often, emerging market countries have sovereign wealth funds (SWFs). Like many other investors, they have come to realise that ETFs are a good and cheap way to invest and diversify.

For example, China's SWF, China Investment Corporation (CIC), is the fourth-largest investor in the US Oil ETF and it recently also took a 0.4% stake in the SPDR Gold Trust, the largest physically backed ETF.

CIC is worth an estimated $300 billion and its mere size could distort the markets, but that is not the only problem. It is the connections between the government as an investor and the government as a consumer and producer. Through their control of large businesses, governments could and do create bubbles that would also be very profitable for their investments in ETFs.

The general assumption of most investors is that commodities and the ETFs, which are supposed to represent them, move according to general economic trends.

Both the reality and information about the real reason for price movements in this asset class could be quite different. This does not mean that commodities are not a good investment.

Money can be made by taking advantage of the volatility. It does mean that assumptions about economics and safe diversification may simply be untrue.

(The writer, William Gamble, is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])


Study indicates farmers not keen on GM crops

The nationwide survey was conducted to help formulate a policy around biotechnological innovations in India, taking into account public perceptions and attitudes

In the backdrop of the controversy over the safety of use of Bt brinjal in the country, a study has claimed that most farmers do not favour genetically modified (GM) seeds for producing food crops while there is also a lack of information among consumers about their usage, reports PTI.

Around 4,000 farmers and 2,500 consumers nationwide were surveyed in the last three years in five States jointly by Gene Campaign, an NGO, and Hyderabad University, to study the general attitudes and perception of farmers and consumers towards GM seeds and foods. “Among farmers, about 40% said that they were willing to cultivate cash crops with modified seeds (often referred to as transgenic fertilisation) while 80% refused to use such seeds, that contain a poison to control pests, for producing food crops,” says the study.

It also noted that their attitude towards food was conservative and there was sacredness attached with it.

About 90% of farmers did not agree to take the risk to use technology that allows the use of chemicals to control all weeds effortlessly but also destroyed surrounding flora, as per the study.

The seed "modified" with animal or insect parts were viewed as "tempered," not normal and natural and different from regular seeds, said Suman Sahai of Gene Campaign, claiming that such perceptions was seen across all age groups and educational status.

However, the respondents, both farmers and consumers, trusted the government with respect to agriculture and food technologies rather than the media or NGOs—or for that matter, scientists—according to the study.

“The government must be humbled by the trust placed in it by the country's farmers and consumers with respect to agriculture and food technologies and this should propel them to safeguard public interest," said Ms Sahai, advocating further research in this area. She said that the government's biotechnology policy must take into account the societal contexts of technology adoption to strengthen the interest of the public who, according to the survey, have posed faith on the government for information and regulations.

"The overall goal of this first-ever study in the country is to contribute towards formulation of a meaningful and transparent public policy around biotechnological innovations in India, which takes into account public perceptions and attitudes," said E Haribabu, who is associated with the Hyderabad University.

Consumers were equally sceptical of GM foods mainly because of lack of information and the respondents felt they had no benefit from such items while private companies were the prime beneficiaries.

“Attempts to introduce foods into a situation where the majority of the population is not aware of the nature of GM foods or of their benefits and risks is not democratic or enlightened policy making,” said the study.


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