Monday Closing Report: No man’s land: Watch out for 20,000

Boosted by a slew of positive corporate earnings reports over the weekend and firm cues from across the globe, the market opened higher. However, selling pressure after the indices touched their day's highs resulted in the indices paring some of their early gains.

The Indian market opened firm this morning tracking global cues and positive reports from local companies that have declared their quarterly earnings numbers so far. Early gains were supported by across-the-board buying. The market traded in a narrow range after touching the day's peak in late morning trade. However, investors resorted to profit-booking at higher levels, resulting in the indices giving up part of their morning gains but ending the day in the positive zone.

The Sensex ended 137.26 points (0.68%) higher at 20,303 after scaling an intraday high of 20,452 and a low of 20,199. The Nifty closed at 6,106, up 39.75 points (0.66%). The benchmark swung between a high-low of 6,151 and 6,094 during the session.

The overall market breadth was tipped in favour of the gainers. The Sensex settled with 23 stocks in the green while seven ended in the declining list. Of the 50 Nifty stocks, 39 were in the gainers' list while 11 ended lower. Among the broader indices, the BSE Mid-cap index rose 0.77% while the BSE Small-cap index advanced 0.77% - outperforming the key indices.

The top Sensex gainers were Hindalco Industries (up 4.32%), ACC (up 4.04%), Tata Motors (up 2.80%), Sterlite Industries (up 2.47%) and Cipla (up 2.34%). The losers were led by Wipro (down 4.04%), Infosys Technologies, ITC (down 1.11% each), HDFC Bank (down 0.45%) and Tata Power (down 0.32%).

The sectoral space was led by BSE Consumer Durables (CD) (up 2.37%), BSE Auto (up 1.23%) and BSE Metal (up 1.09%). The sectoral losers were BSE IT (down 0.37%), BSE Fast Moving Consumer Goods (FMCG) (down 0.20%) and BSE TECk (down 0.08%).

Asian markets, with the exception of Japan's Nikkei, ended with decent gains on news that the Singapore Exchange (SGX) has submitted a bid to acquire Australian Securities Exchange (ASX), Australia's key exchange. Sentiments received an early boost with the Group of Twenty (G20) leaders asserting that they would chalk out ways to end the currency imbroglio. Meanwhile, analysts opine that investors will be on the lookout for the outcome of the US Federal Reserve meeting, due next week.

The Shanghai Composite jumped 2.57%, Hang Seng was up 0.47%, Jakarta Composite advanced 1.27%, KLSE Composite added 0.05%, Straits Times rose 0.27%, Seoul Composite was up 0.97% and Taiwan Weighted surged 1.70%. On the other hand, Nikkei 225 tanked 0.27% at the end of the session.

India's exports shot up by 23.2% year-on-year to $18.02 billion in September this fiscal, while faster import expansion increased concerns over the widening trade gap. Imports for September grew by annual 26.1% to $27.14 billion, commerce secretary Rahul Khullar said today.

For the first half of fiscal 2010-11, exports stood at $103.30 billion while cumulative imports went up to $166.5 billion leaving a large trade gap of $63.2 billion. The trade deficit for September alone was $9.12 billion, the secretary said.

The US market ended mixed on Friday as investors took a breather after the recent gains on good earnings reports. Meanwhile, an economist at Goldman Sachs on Sunday opined that the Federal Reserve might purchase $2 trillion of assets to stimulate the US economy in its meeting on 3rd November.

The Dow fell by 14.01 points (0.13%) to 11,132. The S&P 500 added 2.82 points (0.24%) 1,183. The Nasdaq rose by 19.72 points (0.80%) 2,479.

Foreign institutional investors were net buyers of Rs584 crore on Friday. Domestic institutional investors were net sellers of Rs327 crore on the same day.

Bharti Airtel (up 1.14%) today said it will launch the much-awaited third generation (3G) services before the end of this year, making it the third private operator in the country after Tata Teleservices and Vodafone to unveil plans for offering mobile broadband services.

Airtel had paid the highest amount (Rs12,295.46 crore) for bagging 3G spectrum (radio waves) in 13 telecom circles.

State-run NTPC (up 1.35%) today said that it will invest about Rs20,000 crore for setting up a coal-based power project in Madhya Pradesh.

NTPC has executed a Memorandum of Understanding (MoU) with Madhya Pradesh and MP Power Trading Company for setting up a 3,960MW thermal power project at Barethi in the state, the company informed the National Stock Exchange. The project is likely to be commissioned during the XII Five-Year Plan Period (2012-17).

Engineering, procurement and construction (EPC) company BGR Energy Systems has bagged a Rs2,168-crore balance of plant (BoP) contract from Hyderabad-based Thermal Powertech Corporation of India Ltd, BGR Energy (up 1.34%) said today.

The project, which will set up a 2x660MW supercritical thermal power greenfield project, including a large coal handling plant, is the 16th BoP contract to be executed by BGR Energy Systems.


PM recommits to reforms; pegs growth at 9% for next year

Tokyo: Prime Minister Manmohan Singh has committed to carrying out reforms to facilitate higher investment flows and expressed the hope that the Indian economy will revert to a high growth path of 9% from the next fiscal, even achieve double digit expansion in coming years.

“It is my expectation that we will return to a 9% growth path in 2011-12. I am confident that the strong fundamentals of the Indian economy will enable us to achieve our objective of double digit growth in the coming years,” Dr Singh said at business luncheon hosted by Nippon Keidanren, the federation of Japanese businesses and associations, PTI reports.

Though the global financial crisis did not have a direct impact on the Indian economy, a ripple effect saw growth slowing to 6.7% in 2008-09, against 9% in the previous three years. The stimulus provided by the government through tax cuts and increased expenditure pushed up growth to 7.4% in 2009-10. Growth further rose to 8.8% in the first quarter of this fiscal. The government has pegged growth at 8.5% this fiscal.

The prime minister admitted that there were challenges to recording such a high economic growth. “I do not underestimate the many challenges we face in achieving such high levels of growth,” Dr Singh said.

He said that his government is reforming both the direct and the indirect tax systems. Reforms are being carried out in the financial sector, capital markets, education and the development of skills, to create a favourable climate for investment. “We are determined to continue the process of economic reforms that will create a favourable investment environment and facilitate higher investment flows,” the prime minister said.

Dr Singh also hoped that there would be robust rebound in Indo-Japanese trade, to over $20 billion by 2012, from $10.3 billion in 2009-10. He said that currently trade between the two countries is low and unbalanced. India had a trade deficit of over $3 billion in 2009-10 with Japan.

On specific reform issues, Dr Singh said, “We are continuing the process of reforms of both direct and indirect taxes and hope to unify in due course all indirect taxes into a single Goods and Services Tax (GST). We are pursuing reforms in the financial sector, capital markets, higher education and skill development.”

The Centre plans to introduce GST some time next fiscal. In this connection, state finance ministers will meet with Union finance ministry officials in Goa later this week.

The government has also tabled the Direct Taxes Code Bill in parliament to replace the archaic Income Tax Act from 1 April 2012. It is also considering legislation to reform the pension system as well as the private banking space. 


Rare earth metals: What’s moving this commodity?

China, the world’s largest producer of rare earths, has been intervening in the mining and production of these commodities in order to jack up prices. While a few rare earth metals have seen a spike in values, it looks like the invisible hand will eventually triumph over state-sponsored capitalism

Rare earth metals are commodities. Like other commodities they have been on the rise lately, but exactly the reason why stands as a parable for state-controlled capitalism in general and its consequences, especially in China.
The name 'rare earth metals' is in itself a misnomer. These 17 elements with exotic names like thulium and lutetium are essential for many high-tech uses including wind turbines, car batteries and many sophisticated defence applications. Even the scarcest of them are 200 times more abundant than gold. China has been blessed with 57% of the world reserves, but that leaves 43% outside of China including substantial reserves in the United States, Central Asia and other countries.
As far back as 1992 the then leader of China, Deng Xiaoping, wanted rare earths to be for China what oil was to the Middle East. For over 20 years China has been making heavy investments in the mining and refining of rare earths. In the process as in many other industries, Chinese production forced prices down so low, that mines in other countries could no longer compete.
For example from 1965 until the mid-80s the United States was able to provide almost half of the global requirements and was self-sufficient in rare earths thanks to one mine in California. That mine closed at least temporarily due to environmental considerations. Without competition the Chinese have been able to dominate the industry providing the world with over 97% of the demand for rare earths.
Although the Chinese have been successful in driving the price of rare earths down and forcing their competition out of business, they have not been very successful in exploiting their monopoly. The price for rare earth metals has climbed only a little more than 20% from 1979 until 2009 when its average price per tonne was $8,500, this despite a tripling of demand in the past decade alone.
Part of the problem in China is that as demand rose so did the number of miners including both private operations and illegal operations. Contrary to popular perception the state-owned enterprises' dominance of the Chinese economy is growing, not shrinking. This is especially true in the rare earths sector where licenses to mine rare earths are only given to a few select state-owned enterprises. 
Like all monopolies, China has been attempting to restrict the supply to increase the price. Since 2006 they have been cutting exports by 5% to 10% a year. On one level this has been successful. The price of some rare earths like cerium oxide has risen 600% since the start of the year and its price is 20 times higher than in 2005.
However recently, the Chinese have tried to mix markets and diplomacy. In September a Chinese trawler captain rammed a Japanese coast guard vessel near some uninhabited islands claimed by both Japan and China. The Japanese arrested the captain. In retaliation the Chinese were suspected of cutting off rare earth exports to Japan.
The Japanese embargo is just a part of a broader attempt to boost prices and limit exports of rare earths by up to 30%. To effectuate this policy they're using all the tools of state including export quotas, taxes, and licensing procedures.
The Chinese restriction set off alarm bells in both Tokyo, Washington and even Wall Street. The self-styled "Original Gold Bug", James Dines, transformed into the "Original Rare Earth Bug" and forecast an enormous spike in prices.
The Japanese have embarked on a "rare earth strategy" by spending $1.2 billion to improve supplies. Toyota, Sumitomo, and Mitsubishi are exploring deposits in India, Vietnam and Canada.
Not to be outdone, the American Congress has a bill that has passed the House of Representatives and is pending before the Senate. The US mine in California has restarted production and expects to meet about a sixth of the global demand by 2012. Even South Korea will spend an additional $15 million as part of a long-term plan to secure supplies.
So Chinese state-run capitalism has succeeded only in providing a temporary spike in prices that will dissipate in a very short period of time, as other nations subsidise competition. They have also created collateral damage. The high prices and restrictions have of course created an economic incentive to smuggle, which is easy enough because it is easy to confuse exports of rare earths with shipments of ferroalloys. It is estimated that smuggling provides Japan with about 20% of its supplies. Worse, since rare earths are often mined next to radioactive elements, their processing has created vast wastelands of devastated land.
The disregard of the rules by metastasizing state-owned enterprises in furtherance of a single-minded political goal has permeated and affected other areas of the Chinese economy. The attempts to rein in the present real-estate bubble have been an abject failure, yet like rare earth mining, the horrific consequences will last for generations.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected]or [email protected])



Shadi Katyal

7 years ago

India must have some of such rare materials but we will never know as our environmental Minister and some NGO think that such mining might bring to poor people earning capacity and nation to be sefl sufficient is wrong.
Do we have any policy except to mollify everyone?

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