Pessimism is rife. That's why a bounce is likely
The market ended lower in the holiday-shortened week (ending 28th January) on persistent weakness from the domestic arena, fuelled by the rate-tightening move by the Reserve Bank of India (RBI), rise in weekly food inflation numbers and caution about corporate earnings estimate, going forward.
The market suffered a vicious third day of decline on Friday. The Sensex and the Nifty started lower at the opening and continued to fall sharply throughout the day. Towards the afternoon, panic selling gripped the market when it hit a low of 18,235 on the Sensex and 5459 on the Nifty after a free-fall. In the last hour, short covering and some value buying pulled the market higher. The Sensex closed at 18,396 and the Nifty at 5,512. The broader markets were also hammered in the day's trade. The BSE Mid-cap index tanked 2.66% and the BSE Small-cap tumbled 3.59%. With this, the market has suffered a third consecutive day of sharp decline.
On a weekly basis, this has been the third week of decline in the year so far. The market has fallen very sharply from its high in October and some sort of revival is on the cards. If Friday's lows are not broken, we expect a staggered and a weak rally that may take the market to 5,725 on the Nifty. However, the broad trend is down and so if you are buying stocks in this environment-be careful and make only small commitments.
The market opened on a positive note on Monday, boosted by good quarterly numbers announced by State Bank of India (SBI) and Reliance Industries (RIL) last week. The indices touched their day's highs around noon but pared some of the earlier gains and ended in the green. On Tuesday, trading was volatile in the morning session as investors were cautious ahead of the monetary policy and this capped gains in the early session. With key interest rates raised less than what analysts expected, the indices touched their intra-day highs at noon. Investors took the opportunity to book profits, resulting in the indices paring all their gains and venturing into negative territory.
The market opened higher on Thursday on better-than-expected quarterly data announced by some corporates and optimism from the Asian markets. However, selling pressure and a marginal rise in the weekly food inflation figures led the key indices into negative territory. Selling became intense in post-noon trade, dragging all the sectoral gauges into the red and closing lower for the second day in a row.
The market suffered a 3% decline in the week, with the Sensex skidding 611.56 points and the Nifty ending 184.35 points lower.
Oil & Natural Gas Corporation (up 3%), NTPC, Tata Steel and SBI (up 1% each) were the noteworthy gainers on the Sensex. The losers were led by DLF (down 12%), Mahindra & Mahindra (down 10%), Hindustan Unilever, Reliance Communications (down 8% each) and RIL (down 7%).
All sectoral indices ended in the red with BSE Realty index (down 9%) and BSE Healthcare index (down 5%) emerging as the top losers.
The RBI, in its monetary policy review on Tuesday, hiked the short-term lending (repo) rate to 6.5% and the borrowing (reverse repo) rate to 5.5% (an increase of 25 basis points each). It also extended the additional liquidity support facility to banks till 8 April 2011. The central bank has retained the cash reserve ratio (CRR)-a portion of deposits that banks are required to maintain in cash with the RBI-at 6% to ensure that the system has enough liquidity to meet loan requirements. Home, auto and loans to corporates may become dearer, though bankers felt there may not be an immediate increase in interest rates.
Dearer vegetables pushed food inflation marginally up to 15.57% for the week ended 15th January from 15.52% in the previous week, prompting experts to say that the apex bank may go for yet another round of rate hikes in its mid-quarterly policy review in March. Food inflation was 20.07% a year ago.
Based on price movement in the wholesale market, food inflation rose by 0.05 percentage points for the week ended 15th January, after declining for two consecutive weeks.
Oil minister S Jaipal Reddy has ruled out deregulation of diesel prices, saying it is not politically and practically feasible. Mr Reddy, who replaced Murli Deora as the new oil minister last week, had said that one of the major task at the nation's highest economic turnover ministry is clearly cut out-avoiding fuel price hikes.
Expressing concern that the black money stashed in banks abroad might have originated from arms deals, drug trafficking and smuggling, the Supreme Court has asked the government as to what action it had taken against individuals and firms having foreign accounts. The court also sought replies from the government, RBI and the Chief Vigilance Commissioner on a petition seeking direction to the government to ratify the United Nations convention on corruption, which would facilitate it in bringing back black money from foreign banks.
The market will look to the global arena for support and direction in the next week. Besides, the last lot of corporates will announce their quarterly numbers during the week.
As both ends of the Suez Canal have come under curfew, how does the shipping industry cope?
Egypt boils over, after Tunisia did a few weeks ago, and the Suez Canal Authority is offline. Curfew has shut down both ends of the Suez Canal and reports coming in from shippie friends suggest that there are delays in transit. About 9% of the world's trade by volume and slightly more by value moves through this vital artery-and an unknown amount shrouded in the mystery that is international oil trade, moves through the SUMED (Suez-Med pipeline) which trans-ships crude oil from Ain Sukhna on the Red Sea/Gulf of Suez end to Sidi Kerir near Alexandria-equally mysteriously converting "sanctioned" oil from Iran to legit oil at the other end, for example.
As commodity, forex and oil traders, as well as other people who make money out of information, move rapidly in the West-while the weekend closes most markets East of Suez-we get a ringside seat, once again, on how fortunes will be made and lost in shipping. Your humble correspondent managed a ringside seat the last time around, when Onassis, amongst others, made their fortunes, and seems the next cycle may soon be on us.
A successful shipping industry, as has been said before, is always ahead of the curve as far as the world's commercial outlook is concerned. The rest of the world may go through all sorts of geo-political changes, weather patterns may re-invent themselves, consumption and affluence as may go through seismic shifts impacting countries and continents-but ships have and will continue to keep the wheels of commerce turning. Face it; even wars cannot continue for long, without the shipping industry's support, no merchant ship will keep the wheels of battle turning. Your correspondent has spent time detained in a West European port decades ago for being on a ship that was ostensibly carrying illegal arms which by a stroke of a dictat by pen on paper magically became legitimate cargo and then was delivered to the opposing regime it was originally intended for. The owners were just concerned about the freight and we were concerned about our salaries-and being detained while being allowed ashore was not all that bad, either.
By definition, shipping has for centuries ensured its survival only if it has been able to read the tea-leaves correctly, ensuring that its ships and support elements that are in the correct place just slightly ahead of the correct time. And with the correct kind of ships.
To understand this better, we have to first look at the typical returns that shipping as an industry gives-and then ask ourselves the question-why do people get into shipping if the real monetary returns are so low? Historically, from a variety of sources as well as part of Maritime Economics 101, return on capital employed in shipping for the past century has seldom been over 6.5% to 7% per annum, and usually lingers in the 2%-3% per annum region. Most certainly in days before the last 100 years, the commercial return was often negative, though the other long-term benefits like colonial dominance, religious evangelism and military might were more than compensatory.
Things haven't really changed much in the present day and age. However, what has changed is that shipping also has to turn a minimum profit as well as be ready to pick up the surges, since financial backing from royalty, religions and regents, in uniforms, cassocks or robes cannot be declared as openly as it was a few centuries ago. So, through an intricate web of ownership modules, the real controlling forces behind shipping worldwide remains the same but will simply not be able to declare this. In addition, the primary reason of global dominance remains the main pillar for anybody wanting to get further in shipping. As well as aviation, for that matter, but there is a vital difference there.
And the vital difference has to do with the age-old unchallenged concept of "innocent passage" guaranteed to commercial merchant ships worldwide, regardless of what they are up to-as long as the origin and destination ports are fine with things, and as long as global conventions on the subject in times of declared wars or similar are not in force. In other words, technically speaking, you cannot touch an enemy nation's ship even if all she is doing is running "innocent passage" through your territorial waters. Israeli ships will be and have been able to sail through the Red Sea and thence through the Suez Canal, and the Russians could use the Panama Canal, even at the worst of times-and that is how it has always been.
But when natural events-or in some cases, "sponsored activities"-cause a breakdown in and around the choke-points, then all bets are off on "innocent passage" and Black Swans kick in. A choke point in shipping, incidentally, would be a narrow waterway that impacts international trade as ships funnel through them. Malacca Straits near Singapore, Suez Canal in Egypt, the Straits of Gibraltar between Europe and Africa, Straits of Hormuz at the entry to the Persian Gulf, and the Panama Canal-are vivid examples. It is no coincidence that the colonial powers and now the developed world have always tried to and have succeeded in controlling these "choke points". Except, lately, the Suez Canal.
This now, for the second time in recent history, appears ready to re-write the way shipping fortunes are likely to fluctuate.
Shipping fortunes are made-and lost-but mostly made, during periods known as "volatile" when risk, same meaning actually, is factored in. And over the last few months various indices and indexes that track shipping rates have been behaving very mysteriously, almost as if they were predicting in some ways that a choke point was due to boil over. Shipping circles, more than any other commercial interests, are watching and positioning assets very strategically-backed by national interests-and turbulent times lie ahead. Watch this space for more.
(Veeresh Malik started life as a seafarer, and in the course of a work life, founded and sold Pacific Shipping and Infonox Software, to return to his first love-writing).
Government’s unresponsive attitude towards Bombay Telephone Users’ Association’s public meeting invite that discusses health hazards due to radiation
In January 2010, Usha Kiran apartments, on Carmichael Road in the plush South Mumbai area was in the news, after four of its residents died due to cancer caused by electromagnetic radiation (EMR) emitted from the cluster of cell towers located on the terrace of the opposite building, named Vijay Apartments. It was only after a protracted fight by the residents of several buildings in the vicinity that these towers were removed. Since then, there have been several instances where mobile phone companies have yielded to the demands of citizens and removed cell towers rather than face the consequences of negative publicity due to protracted legal fights.
But is the government sensitive to these concerns of the aam aadmi that it woos? Not if you were to go by its cold response to a public meeting to discuss the "Radiation Health Hazards from Cell Towers: Myth or Reality". The meeting has been organised by Bombay Telephone Users' Association (BTUA) on Saturday 29 January 2011 "to raise awareness among the citizens and to help government in taking required steps in resolving this issue." The Association has been requesting the Department of Telecommunications (DoT) to send a representative to attend the meeting with no success.
Experts from various fields will speak on the subject. The panel will consist of Dr RS Sharma from Indian Council for Medical Research, Anil Prakash representing Telecom User Group of India, New Delhi and Professor Girish Kumar, head of wireless from IIT Bombay, who is been researching the effects of EMR for the past couple of years.
"The aim of the programme is to bring together the citizens and experts who are concerned about the issue and share their knowledge on the subject. This will at least make the government aware, and required steps would be taken to curb the problems arising out of these towers." said Mr Achintya Mukherjee, secretary of BTUA.
"We have invited officials from DoT, Telecom Regulatory Authority of India (TRAI), but so far no confirmation has been received from them. Among the mobile network operators, IDEA cellular has confirmed that they will send their representatives" added Mr Mukherjee. Nor is there any participation from the BMC and the Maharashtra Government. It may be recalled that Prithviraj Chavan had stated in a written reply tabled in the Vidhan Sabha on 7 December 2010 that "the government is collecting feedback from concerned departments for framing comprehensive rules and regulations for installation of mobile towers by cellphone service providers in the state."
Government of Maharashtra, appointed a committee in March last year headed by additional chief health secretary to study the effect of mobile phone towers on public health. The committee had representatives from the Bhabha Atomic Research Centre and Tata Memorial hospital, recommended to ban such towers near schools, hospitals and it should be only restricted on rooftops of the building.
In 2008, DoT has laid guidelines stating that the antennae must not directly face a nearby building. Despite this many such towers are visible across the city, as it remains main source of revenue for the housing societies. Often these towers are illegal and violate health and safety norms.
Lack of participation from the government indicates clearly that "collecting feedback" is a mere formality. As in many other cases of consumer safety, the government will respond only to public interest litigation and only when it is directed by the judiciary.