Stocks climb to five-week high

Sensex gains 68 points to close at 17,199 in volatile trade

The stock market climbed to a five-week high in volatile trade on Wednesday, with the BSE Sensex gaining 68 points to close at 17,199 while the Nifty closed 18 points up at 5,108. Market volatility is expected to continue over the next two days as traders roll over positions in the derivatives segment ahead of expiry of the November 2009 contracts on Thursday. At the end of Tuesday’s trading, rollover in Nifty futures was about 54% while rollover in Mini Nifty futures was about 33%. The market-wide rollover was about 48%.
Reliance Industries (RIL) rose 1% on reports that the company has reopened 900 gas stations, which were shut down when state-run oil marketing firms were selling heavily subsidised fuel.

India’s largest small-car marker Maruti Suzuki India rose 1% on reports that the company will spend Rs2,000 crore to expand production capacity at its Manesar factory in Haryana.

However, India’s largest commercial vehicle maker Tata Motors fell 1% on reports that the company is looking at buying private equity firm Actis’s stake in truck and bus-maker Swaraj Mazda.
Mahindra Satyam slumped 11% on reports that the Central Bureau of Investigation found evidence of an additional Rs4,739 crore corporate fraud in the company, committed by its founder R Ramalinga Raju and his associates.

Bajaj Hindusthan was up 5% on reports that a foreign fund hiked its stake in the firm.
Unitech fell 2% on equity-dilution worries following reports that the company has sought approval from the department of industrial policy and planning and the Reserve Bank of India to raise $700 million through foreign currency convertible bonds.

J Kumar Infraprojects’ order book is worth Rs1,475 crore after receiving pilling works orders from Larsen & Toubro and others worth Rs8.75 crore. The stock remained flat.

Welspun Gujarat Stahl Rohren was up 3% on reports that the company has successfully mobilised $250 million.

During the day, Asia’s key benchmark indices in Hong Kong, China, Japan, Singapore, South Korea and Taiwan rose by between 0.34%-2.07% on expectations of stronger economic growth.

As per data released by the Japanese finance ministry, Japan’s exports fell 23.2% in October, compared with a 30.6% decline in September.

On Tuesday, in the US markets, the Dow Jones Industrial Average was down 17 points while the S&P 500 and the Nasdaq Composite slipped one point and seven points, respectively.

As per reports, US Federal Reserve officials are confident that the US economic recovery will be durable, but they do not see employment or inflation picking up soon. The US Fed projected the economy will shrink 0.1% to 0.4% this year and grow by 2.5% to 3.3% in 2010. US GDP growth in the September 2009 quarter was revised to 2.8%, lower than the initial reading of 3.5%. The conference board’s gauge of consumer confidence rose to 49.5 in November 2009 from 48.7 in October 2009 and home prices improved for a fifth straight month in September 2009.

According to the Office for National Statistics in London, the UK’s gross domestic product fell 0.3% less than previously estimated in the third quarter as consumer spending stopped falling and the service industries’ slump eased.
— Swapnil Suvarna [email protected]


Gold likely to average $1,300/oz by Q4-2010, says StanChart

The investment case for gold has become increasingly compelling with central bank buying and a structural change in interest in gold as an investment product among retail customers, said Standard Chartered (StanChart) in a research note.
“Although the upside will be capped by lower jewellery demand, increased availability of scrap gold as prices surge to new highs and periodic dollar strength in the first half of 2010, we see gold moving higher to average $1,300 per ounce (oz) in the fourth quarter (Q4) of 2010 once the dollar resumes its weakening trend,” said Helen Henton, global head of commodity research StanChart.
Gold has averaged $955 per oz so far this year.

In its Commodities Quarterly report, StanChart has said that it expects platinum to outperform gold in 2010, supported by the upward momentum provided by gold prices and due to supply issues, including rising costs and a vulnerable power grid in South Africa.

After plummeting in Q4-2008, commodity prices have performed well this year. The Dow Jones UBS index is up 15% so far this year, led by a 64% lift in industrial metals prices. Crude oil prices are also up 74%, but the energy complex as a whole is down this year as natural gas prices have been weighed down by massive oversupply. Precious metals have also risen 37% year-to-date, the research note said.

The gains have been driven by a combination of US dollar weakness, supply restraint, improving investor sentiment and, eventually, a pickup in actual demand. Crude oil demand, for instance, bottomed in the second quarter and is now edging higher.

The levels of demand are still below previous peaks, however, StanChart said it does not expect crude oil demand to return to the previous peak in Q4-2008 before 2012. The weak demand growth and the potential among the leading producers to expand output are likely to keep crude prices capped, with average price for Q4 of 2010 forecast at $88 per barrel, it added.

Crude oil has averaged $60 a barrel so far this year.

Among base metals, StanChart said it is relatively more bullish on copper and lead where the supply situation is tighter. The outperformance of the base metals complex this year is a direct result of China’s stimulus package and early recovery. While the level of imports may have been excessive and inventories have risen, the recovery in end use demand has been evident in the key metal consuming sectors, it added.

According to the report, commodity prices will retreat in the first half of 2010 as the dollar rebounds and concerns emerge over the sustainability of the global recovery. It said during this period investors are likely to refocus on commodity market fundamentals—those with the tightest supply are likely to outperform. With liquidity still ample, the pull back is unlikely to be severe.

The second half of 2010 is likely to be markedly different from the first half as renewed US dollar weakness, pickup in growth in the US, in particular, and ample liquidity draw investor funds back to commodities, pushing prices higher, the report added.

With the notable exception of nickel, soya beans, sugar and rice, prices will rise in the Q4 of 2010 versus the corresponding period in 2009, StanChart said.

Among agricultural commodities, which have underperformed other commodities this year, corn is expected to lead prices higher in 2010 as a result of poor weather conditions in the US and China. Corn and palm oil are also likely to benefit from firmer energy prices in the second half of next year. In contrast, the winning agricultural commodities of 2009—sugar and soya beans—are likely to underperform as improved crops flood the market, dampening prices, the StanChart research report said.
-Yogesh Sapkale [email protected]


'Ten lessons we learnt during the Slowdown’

Pranay Vakil, chairman, Knight Frank India, highlights 10 home truths that the real-estate industry realised during the downturn that lasted around 18 months

1. Liquidity is vital: Developers realised this when sales volumes declined drastically due to the liquidity crunch. Developers who were selling, say, 40 flats a month could sell only around a tenth of that volume during the past 18 months. Liquidity was taken for granted by developers during the bull run. And when they could not repay their loans, they tried to sell off their land banks to raise cash.

2. Focus on the customer: The slowdown gave customers ample choice. Consequently, developers started looking seriously at the requirements of the buyer: What does he want? And what is the price he is willing to pay?

3. Investors are ‘fair-weather friends’: An investor is ‘with you’ in good times; when property prices go up, volumes go up. But during a downturn, when you need him the most, he becomes your ‘competitor’. Many developers were impacted by falling volumes because investors were selling their inventories at lower prices.

4. Sell ‘ready’ products during a slowdown: Developers who were the least affected by the slowdown were those who had ready products to offer. If your project was under construction or there was just a hole in the ground, it was difficult to find buyers. So, developers realised that they had to first complete the project before trying to sell it. Also, there were no takers for information technology parks during the slowdown.

5. Contracts can be broken: Developers witnessed customers back-tracking on legal contracts, especially in the commercial segment. Even big companies which had signed legal contracts and completed the registration procedure wanted to renegotiate or exit deals before the lock-in period ended. This had a cascading effect because many developers had raised money against the expected cash flows. As their loan burden increased, confidence in the industry was shaken.

6. Spiking prices is counter-productive: A few developers offered properties for as high as Rs1 lakh per sq ft. They discovered that a steep or sudden increase in prices can make customers postpone their buying until there is a correction. On the other hand, healthy growth can be sustained by a gradual increase in prices.

7. High-value transactions hyped by the media are not the ‘real’ market: When the media hypes a few high-value transactions, it creates an atmosphere wherein customers begin to feel that prices are too high. For instance, a retail property that is sold for Rs2 lakh per sq ft is an exceptional transaction and does not reflect the broader market. If such deals are hyped, it creates an artificial market and drives away prospective investors.

8. Innovate sales strategy: Developers tried to find innovative ways of driving sales as volumes dropped. A Bangalore-based developer created an escrow account to reassure customers that funds would not be diverted to other projects. Another developer promised to buy back the properties if prices declined over the next three years. Why didn’t the developers come up with this solution earlier? And why weren’t customers buying? Customers stopped buying because of two reasons. First, they expected prices to fall further; and second, they weren’t sure whether developers would complete ongoing projects.

9. Over-dependence on the information technology industry in the commercial sector can be suicidal: IT office space and malls comprise 80% of the commercial market and over-dependence on this customer segment will dry up volumes because the IT industry is one of the worst affected during a slowdown.

10. Do not try to penetrate a market where you lack expertise: Many developers tried to expand into tier-II and tier-III cities but failed to find buyers because they could not match the market knowledge and experience of the local developers.

– Pallabika Ganguly, [email protected]


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