Stocks
Sensex, Nifty precariously poised: Wednesday Closing Report

If the Nifty breaks the level of 5,775, it may head sharply down

The market closed near the lows of the day on concerns that quarterly earnings from corporates would come in below expectations. If the Nifty breaks the level of 5,775, it may head sharply down. The National Stock Exchange (NSE) recorded a volume of 51.42 crore shares and advance-decline ratio of 577:740.

 

The Indian market opened in the positive on supportive global cues. Most markets in Asia were higher in morning trade, but weak trade data from China capped the gains. The US markets closed in the green on Tuesday in anticipation of better earnings reports from corporates.

 

The Nifty opened 11 points up at 5,870 and the Sensex started the day at 19,483, a gain of 44 points over its previous close.  Buying in consumer durables, realty, banking and power sectors soon lifted the indices to their day’s highs. The Nifty touched 5,879 and the Sensex rose to 19,506 at their respective highs.

 

Meanwhile, the International Monetary Fund (IMF) on Tuesday marginally scaled down India's growth rate projections to 5.6% for the current fiscal and 6.3% for the next financial year. This was slightly lower by 0.2% and 0.1%, respectively, than the previous forecast released by the IMF in its report in April.

 

Profit taking in metal, auto, refinery and realty sectors amid choppy trade saw the indices paring their gains and remaining range-bound near their previous closing levels in morning trade.

 

Sporadic buying saw the indices emerge in the positive terrain in noon trade. However, the gains were short-lived as the market slipped into the red in the post-noon session on pressure from oil & gas and auto stocks and concerns about first quarter earnings from corporates.

 

The benchmarks touched their lows at around 2.30pm with the Nifty falling to 5,803 and the Sensex slipping to 19,238. The market settled near the lows as the key European indices pared opening gains and selling in oil & gas, realty and auto sectors.

 

The Nifty settled 42 points (0.72%) lower at 5,817 and the Sensex ended at 19,294, down 145 points (0.75%).

 

The broader indices also settled lower today, as the BSE Mid-cap index declined 0.40% and the BSE Small-cap index slipped 0.04%.

 

BSE Consumer Durables (up 1.95%); BSE IT (up 0.66%); BSE TECk (up 0.27%) and BSE Healthcare (up 0.11%) were the sectoral gainers today. The top losers were BSE Oil & Gas (down 1.82%); BSE Auto (down 1.50%); BSE Realty (down 1.32%); BSE PSU (down 1.02%) and BSE Capital Goods (down 0.98%).

 

Out of the 30 stocks on the Sensex, eight stocks settled higher. The gainers were Wipro (up 1.33%); Tata Power (up 0.88%); Jindal Steel & Power (up 0.74%); TCS (up 0.60%) and ICICI Bank (up 0.34%). The main losers were Mahindra & Mahindra (down 2.63%); Hindalco Industries (down 2.58%); Bajaj Auto (down 2.13%); Tata Steel (down 1.97%) and Reliance Industries (down 1.95%).

 

The top two A Group gainers on the BSE were—Emami (up 5.49%) and Wockhardt (up 5.12%).

The top two A Group losers on the BSE were— Strides Arcolab (down 8.09%) and GlaxoSmithKline Consumer Healthcare (down 5.19%).

 

The top two B Group gainers on the BSE were—Dolat Investments (up 20%) and Asian Hotels West (up 19.94%)

The top two B Group losers on the BSE were—Agro Dutch Industries (down 18.85%) and Sancia Global Projects (down 18.69%).

 

Of the 50 stocks on the Nifty, 13 ended in the in the green. The major gainers were Lupin (up 2.87%); HCL Technologies (up 2.28%); UltraTech Cement Co (up 1.64%); NMDC (up 1.26%) and Tata Power (up 1.23%. The key losers were Hindalco Ind (down 3.12%); BPCL (down 3.07%); Bank of Baroda (down 3.05%); M&M (down 2.79%) and Cairn India (down 2.46%).

 

Markets across Asia, with the exception of Japan and South Korea, closed higher on speculations that the Chinese government might announce some new measures to boost growth on the back of falling exports. Chinese exports fell 3.1% in June from a year earlier, the first decline since January 2012. Meanwhile, imports also were 0.7% lower, lower than expectations for an 8% gain.

 

The Shanghai Composite jumped 2.17%; the Hang Seng surged 1.07%; the Jakarta Composite climbed 1.70%; the KLSE Composite rose 0.13%; the Straits Times gained 0.30% and the Taiwan Weighted advanced 0.51%. Among the losers, the Nikkei 225 declined 0.39% and the Seoul Composite lost 0.34%.

 

At the time of writing, the key European markets were down between 0.27% and .56% and the US stock futures were marginally in the red ahead of the minutes of the release of the FOMC June meeting.

 

Back home, institutional investors—foreign as well as domestic—were net buyers in the equities segment on Tuesday. While FIIs bought shares totalling Rs165.61 crore, DIIs invested Rs37.83 crore.

 

The indefinite strike by employees of Neyveli Lignite Corporation (NLC) against the Centre's move to divest 5% of its stake in the PSU entered the eighth day today. About 30,000 workers, including 13,000 contract employees, are on the strike since July demanding that the government withdraw its decision to sell its stake as part of disinvestment process. The stock rose 0.17% to Rs58.65 on the NSE.

 

Sterlite Technologies has entered into a 50:50 joint venture agreement with Conduspar Condutores Eletricos Limitada (Conduspar), to build a greenfield facility in Curitiba in Parana state (Brazil) to produce optical fibre cables for the Latin American markets. The joint venture is expected to start commercial production by the first quarter of fiscal 2015. Sterlite Tech gained 4.29% to settle at Rs23.10 on the NSE.

 

Tide Water Oil Co (India), now the owner of global rights for the lube brand Veedol, has set up subsidiary in the Netherlands—Veedol International BV—to re-launch the branded products in Europe. Tide Water, which earlier only had the rights to the iconic brand for India, acquired Veedol International, UK, from BP Plc in October 2011 along with the brand rights, its logos and sub brands in 126 countries. The stock gained 0.92% to close at Rs7,220 on the NSE.

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Q1 preview: OMCs may bleed again, says Nomura

Nomura is positive on RIL and Cairn. Among oil PSUs, it believes that upstream PSUs are vulnerable to higher subsidy share

With a sharp decline in oil prices and continued monthly diesel price hikes, Nomura Equity Research estimates first quarter (1Q) under-recoveries (U/Rs) to decline 27% q-o-q at Rs263 billion. While upstream companies are demanding a lower subsidy share (currently billing at same $56 per barrel as last year), the brokerage believes it is unlikely a decision will be made soon. This may lead to a sharp decline in net realisations for ONGC and Oil India (OIL).

 

 


Nomura estimates nearly flat gas transmission volumes for GAIL & GSPL. It expects Petronet LNG’s (PLNG) utilisation to improve sequentially to near 100%, but well below earlier highs of 110%-114%. For Indraprastha Gas (IGL), volume growth is likely to recover but EBITDA/scm could moderate due to an increasing share of LNG and weaker currency. The brokerage expects Gujarat Gas (GGAS) to report good results, as it should benefit from price hikes and softer LNG prices, believes Nomura.
 


Nomura estimates Reliance Industries’ (RIL) PAT at Rs52.2 billion (up 18% y-o-y, but down 7% q-o-q), with the sequential decline driven by weaker refining margin ($8.5/bbl, down 16% q-o-q) and a further decline in E&P EBIT. For Cairn India, the brokerage estimates a 9% q-o-q drop in EBITDA due to lower oil realisation, but the bottomline would likely be boosted by forex gains.
 

 

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National Food Security Bill expected to shave off 1.8% of GDP, says Nomura

The UPA government which cleared and passed the National Food Security Bill ordnance is expected to put a severe dent to fiscal scenario in over the next few years and have wide reaching implications, including inflation and imbalances in the agriculture sector

Nomura Fixed Income Research expects that the National Food Security Bill (FSB) to have ramifications on the Indian economy over the next few years, which includes runaway inflation, distortion in demand-supply scenario and increases in imbalances in the agriculture sector. Nomura also expects the FSB to cost the exchequer a whopping 1.8% of the GDP over the next three years. The report addressed to clients, titled “India: Implications of the proposed Food Security Bill”, said, “We do not expect a substantial fiscal impact in FY14 as implementation will take time: our current estimate of the food subsidy bill is Rs 1 trillion in FY14, slightly above the government’s budget estimate of Rs900 billion (0.8% of GDP). However, once fully implemented, the total cost is likely to rise from 0.8% of GDP to 1.3-1.8% of GDP over the next three years due to a higher food subsidy bill and other ancillary expense.” Many investors and savers should be concerned over this dire forecast.

The United Progressive Alliance (UPA) government passed the ordnance on the controversial Food Security Bill and has raised several eyebrows, apart from the insurmountable costs involved. An ordnance does not require parliamentary debate, but requires parliamentary approval, which is expected in the monsoon session of the parliament. Many political parties have called this ‘undemocratic’ because the cost-benefits of the bill have not been discussed in parliament. Moreover, most have viewed the ordnance as a political ploy to earn brownie points before the elections next year. Despite the expected impact on the exchequer, Nomura, however, expects the bill to go through. It said, “Unless there is a parliamentary logjam, we expect it to pass as most political parties would not like to be seen opposing a pro poor bill.”
 

On a related note, despite being “pro poor”, not all infrastructures are in place to ensure that the grains actually reach the poor. It is pertinent to note that India’s public distribution system (PDS) is still a mess. Nomura further stated, “The current targeted public distribution system (PDS) has a significantly large level of leakage (estimated at 40%). If the government can computerize the entire food distribution system, roll out the cash transfer scheme and eliminate these leakages, then the financial impact of the food subsidy burden may not be as large. However, this is a time-consuming process and most likely the government will rely on the existing PDS to roll out the NFSB in the initial phase. As such, this will lead to a higher food subsidy burden.”
 

Moreover, the FSB is expected to lead to distortion in the agricultural system which could further impact inflation. The economics is stacked against farmers because costs have increased a lot but minimum support prices (MSP) have barely caught up with costs. According to Nomura, costs have increased 16% while MSP have increased just 5% for food grains. There is no incentive for farmers to produce food grains. Therefore, there will be a shortage of food grains for the government to procure. While much of the food grains will be budgeted under the FSB, the private sector will not get their due. This will simply lead to demand-induced inflation due to shortage of supply. In cases of drought, this could exacerbate the demand-supply situation. Nomura states, “We see the proposed FSB as inflationary, because it creates a demand-supply mismatch, requires raising minimum support prices, could create a shortage of non-grain food items and reduces the marketable surplus for the private sector“

There is even a possibility of the private sector importing grains from abroad, due to lack of domestic supply, especially with a weak rupee abroad. Though at the moment, there is surplus food grain; but there will be situations where droughts and poor monsoons can lead to shortage. Already India imports large quantities of food items from abroad.
 

The fiscal impact of the FSB is expected to cause a stress on India’s finances. One of the major expected fallout of the FSB, apart from fiscal stress, is inflation, as mentioned above. Much of India’s economic growth has been dogged by persistent inflation, which the Reserve Bank of India (RBI) has been targeting for a while. Inflation could worsen if the government (as well as the next government post-elections) is not able to manage food supply properly.
 

The FSB proposes foodgrain entitlements to 67% of India’s population at hugely subsidised rates for the first three years. The rates are: 5 kg per person per month of foodgrain, at an issue price of Rs3 per kg for rice, Rs2/kg for wheat and Re1/kg for coarse grains. The FSB is also expected to lead to reforms in the targeted PDS, including doorstep delivery of food grain, use of IT for end-to-end computerization and so on but, according to Nomura, is expected to take time and the benefit of the revamped PDS system will be felt only after years.

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COMMENTS

Ramakumar

4 years ago

ANATOMY OF FOOD SECURITY: PUBLIC DISTRIBUTION SYSTEM (PDS)
Agriculture is a state subject, but central government also collects and distributes food (cereals & Kerosene only) through chain of PDS shops. Studies of national sample survey data, showed that PDS purchases are not benefiting the poor nor relates to poverty level. Delivery in rural areas are poor (Venugopal, 1992) with leakage, losses and diversion to free market
In spite of subsidized credit and freight preference from railways, incidental of FCI is high. Various studies show that 13-22 paise out of every rupee spent reaches poor. Restructuring in 1990’s did not provide any dramatic good. (Parikh, Kirit.S.: India Development report, 1997; Oxford Univ. Press). We have seen that handling cost (app.40.4 % of production cost) is borne by end users/ govt. and that Rs2,07,000 cr. alleged to be siphoned off by middlemen. 35% is eaten by Rats
Direct Cash Transfer (DCT)
An Economic Survey (Kapur et al, 2008), shows that about 310 million (Mn) people or 70 Mn households are below the poverty line (BPL). If the Rs.1,80,000 crore spent on central schemes on food, fertilizer and fuel subsidies alone, were can distribute @ Rs.2,140 to 70 Mn houses. Rs.500/ to each household is given would amount only to 40% of food budget for BPL.
Some 30 countries are testing Conditional Cash Transfer (CCT). Mexico,. Brazil Honduras, Nicaragua, Ecuador, Dominican Republic, Panama, Peru and Jamaica have programs. Bangladesh&Philippines recently introduced CCT. York City in April 2007 launched NYC (by Rockefeller Foundation). Money is handed to female member on a “social contract” that she send children to school & bring them to health centres. The exchequer BRING holistic benefit to society.
Food Stamp: A food coupon to purchase of foodstuff from market (general stores instead of PDS). From a quantity stipulated short list recipients buy discounted food they want. In 2004 it was introduced in Andhra Pradesh.
NOTE: WE may think of credit card type device with specific options. Freebees have the disadvantage; they curb people’s survival skill, discourage the motive to work and in the absence of engagement can pave way lethargy, drugs and anti-social activities. Substantial political, social and financial support (including R&D) for local (or at least regional) production of food and energy of animal origin and staple food may be the only way to achieve viable Food & nutrition security in an equitable manner. PRIORITIZE ANIMAL RESOURCE DEVELOPMENT (where involved are landless and marginal holders), local food/ staple food production, mixed farming, organic food production & BIODIVERSITY

Ramakumar

4 years ago

ANATOMY OF FOOD SECURITY: PUBLIC DISTRIBUTION SYSTEM (PDS)
Agriculture is a state subject, but central government also collects and distributes food (cereals & Kerosene only) through chain of PDS shops. Studies of national sample survey data, showed that PDS purchases are not benefiting the poor nor relates to poverty level. Delivery in rural areas are poor (Venugopal, 1992) with leakage, losses and diversion to free market
In spite of subsidized credit and freight preference from railways, incidental of FCI is high. Various studies show that 13-22 paise out of every rupee spent reaches poor. Restructuring in 1990’s did not provide any dramatic good. (Parikh, Kirit.S.: India Development report, 1997; Oxford Univ. Press). We have seen that handling cost (app.40.4 % of production cost) is borne by end users/ govt. and that Rs2,07,000 cr. alleged to be siphoned off by middlemen. 35% is eaten by Rats
Direct Cash Transfer (DCT)
An Economic Survey (Kapur et al, 2008), shows that about 310 million (Mn) people or 70 Mn households are below the poverty line (BPL). If the Rs.1,80,000 crore spent on central schemes on food, fertilizer and fuel subsidies alone, were can distribute @ Rs.2,140 to 70 Mn houses. Rs.500/ to each household is given would amount only to 40% of food budget for BPL.
Conditional Cash Transfer (CCT)
Some 30 countries are testing CCTs. Mexico,1997. Brazil 2003. Honduras, Nicaragua, Ecuador, Dominican Republic, Panama, Peru and Jamaica have programs. Bangladesh and Philippines recently introduced CCT. Developed nations launched NYC in New York City in April 2007 (by Rockefeller Foundation). Money is handed to female family member on a “social contract” that she regularly send children to school & bring them to health centres. The exchequer is not heavy compared to holistic benefit accrued to society.
Food Stamp
A food stamp/ coupon to purchase of foodstuff from market (general stores instead of PDS). From a quantity stipulated short list recipients are free buy discounted food they want. Food stamp scheme was introduced in Andhra Pradesh in 2004.
NOTE: WE may think of credit card type device with specific options. Freebees have the disadvantage; they curb people’s survival skill, discourage the motive to work and in the absence of engagement can pave way lethargy, drugs and anti-social activities. Substantial political, social and financial support (including R&D) for local (or at least regional) production of food and energy of animal origin and staple food may be the only way to achieve viable Food & nutrition security in an equitable manner. PRIORITIZE ANIMAL RESOURCE DEVELOPMENT (where involved are landless and marginal holders), local food/ staple food production, mixed farming, organic food production & BIODIVERSITY

Ramakumar

4 years ago

Though agriculture is a state subject centre gets involved in collection & distribution of food grain, sugar & kerosene through PDS. Studies of national sample survey indicate that PDS are not benefiting poor. Leakage, losses and diversion to free market are alleged. (Venugopal, 1992).
Studies show that despite concession in freight by railways, incidental of FCI is heavy. Only 13-22 paise out of every rupee spent, reaches the poor. Restructuring of PDS in 1990’s did no good. (Parikh, Kirit.S.: India Development report, 1997; Oxford Univ. Press). Selection and handling of Target Beneficiary (TB) involves public funds for establishing offices of profit for some and posts of power for public men.
Expenditure can be reduced if food can be distributed across board to all Adhaar/ NPR holders. If a computer net work can link PDS shops (through LAN/ WAN) to a main office, distribution of nutrients can easily be monitored (like medical/ other shops checking stock and daily sale). RTI, citizen’s charter or right to service can work if the masses are aware of their rights and show the courage and patience to check on the officialdom (govt. employees and people in power).
 2% people (govt employees) control the fate of the rest 98% of India. [Salaried employees in India are around 2.82 crores. Of this large and small industries employ 78 lakh people. So, 2% govt. employees are controlling the living condition of private sector employees who live in slums and shanties around SEZ’s, of the tribals, the nomands, the pastorials or that of agri.labour]
 As crimes tend to get increasingly politicized these days, commissions and monitoring committees for food distribution could get misused politically.
 Not considering the feed and nutritional security of animal resources and the disproportionately high cost of animal feed force the major stake holders of animal husbandry (ie. small holders and landless) to use subsidized grains to feed animals.
 Animal husbandry is an essential component of organic farming and bio-diversity. There is urgency for R&D on animal resource development (ARD) where inflation is least especially the socio-economics, feed technology, HRD and the service needs of animal husbandry.

Ramakumar

4 years ago

The process of selecting Targeted Beneficiary (TB) can be done away if we provide low cost food to all Aadhar/ NPR holders Monitoring distribution can be done by using LAN/ WAN linked databases. under RTI, citizen’s charter or right to service can be used to verify implementation, than organiising and running committees. But grievance cells would work only if the masses are aware of their rights and has the courage and patience to stand up against the minority that rules (ie. the < 2 crore govt. employees and people in power).
 Salaried employees who form <3% of population control the fate of the rest 97%. Large and small industries has so far provided only 78 lakh employment. Living condition of employees are not uniformly ideal(slums around SEZ’s)
 As crimes are getting increasingly politicized, monitoring committees too may get misused for political ends at govt. cost.

STAPLE FOOD Staple food is that food that is eaten regularly in such quantities as to constitute dominant part of diet. Staple foods are well adapted to the growth conditions of their source areas like drought, pests or soil nutrients.
Subsidy at input and support price at output for agriculture had always been exploited by large land holders who sell food grains in open market at a premium. Instead of providing subsidies at input stage and support price at output stage, govt. may provide a direct, one stage support price (including intended subsidy) to farmers who sells food grains to govt. agencies. Indirect subsidies on fertilizers/ pesticides going elsewhere can thus be stopped..
To compensate for the withdrawal of subsidies at input stage and letting the indirect subsidies go through fertilizer & pesticide manufacturers, liberal Short term loans can be arranged for the producers of coarse grains, lentils, lower grade food grains, animals products and energy food like tubers, cassava, banana etc. The short term loans can be recovered at the time of procurement.
 India holds half of the landless of developing world and most of the marginal holders of the world. NSS 1991-92 indicates that they hold only 15.6% of the land in the country with larger land holders owning nearly 84 % of operational area of agricultural land. Size of land per person is steadily decreasing.

Agriculture being a state subject state govt.s can encourage local production of staple foods as they are well adapted to the growth conditions of their source areas like drought, pests or soil nutrients. Animal husbandry, mixed farming, and production of staple food run on a low input –low out put regimen essentially by small holders are nutritious, sustainable, cost effective, low on risk, residues, pesticides. The state can save on transport, storage, spillage, damage and can control the cost and quality of local (staple) food production for man and animals.
 The focus of food security plan has to be through regional strategies for high productive zone, low productivity-high potential zone, low productivity zone and ecologically fragile zone. The priority has to be on nutrition than hunger, fitness than fatness, quality than quantity.

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