Sensex sheds 19 points, ends at 16,894

Dollar hits a new three-month high; Indian markets continue on their volatile trend

Indian markets continued to remain in the red on weak global cues. The Sensex declined 19 points from the previous day’s close, ending the day at 16,894, while the Nifty remained flat at 5,042.

During the day, Tata Steel rose 1%. As per media reports, the company’s European unit Corus has secured a €350-million contract to supply rail tracks to French railway operator SNCF.

Ennore Coke rose 3% on reports that the company plans to buy a 90% stake in an Australian mining firm.

Titagarh Steel shot up 10% after the Calcutta High Court approved the amalgamation plan of the company and unlisted Titagarh Biotec with group firm Titagarh Wagons.

Diamant Investment & Finance was locked at 5% after the company said its board will meet on 24 December 2009 to consider issue of bonus shares and raising funds.

The Gemini-PointRed combo outbid various multinational companies to win another major mobile WiMAX deal from BSNL worth Rs435 crore. Gemini Communication was up 5%.

Patel Engineering shot up 2% on reports that the company had bagged an order worth $1 billion in Djibouti.

Pratibha Industries secured a contract worth Rs129.89 crore from the Haryana Urban Development Authority. The project is in joint venture with SMS Paryavaran Pvt Ltd. The stock was up 2%.

Usha Martin Infotech has signed a non-binding, non-exclusive Memorandum of Understanding with Pearson Education India for foraying into school management. The stock was up 5%.

Tanla Solutions gained 6% on reports that Tanla Mobile Pvt Ltd (TMPL), a subsidiary of Tanla Solutions (TSL), had commenced operations from DLF Cyber City in the Special Economic Zone at Hyderabad.

KEC International has won major orders in Algeria and Abu Dhabi worth Rs474 crore and Rs76 crore respectively. The stock was up 3%.

As per data released by the government, the food price index rose 19.95% in the year to 5 December 2009. The fuel price index rose 3.95% and primary articles index rose 14.98%.

Moody’s Investors Service upgraded the long-term foreign currency (FC) deposit ratings of 14 Indian banks to ‘Ba1’ from ‘Ba2’, following the rating agency's recent upgrade of India’s FC deposit ceiling.

Meanwhile, the two main bourses, Bombay Stock Exchange and National Stock Exchange have reportedly postponed by more than two weeks their move to bring forward the start of trading by 55 minutes, after strong protests from brokers. Extended trading on the two stock exchanges will now begin on 4 January 2010, instead of the earlier planned date of 18 December 2009. The two exchanges had announced late on Wednesday the extension of trade timings in equity and derivatives segments by almost one hour to 9:00am IST effective from Friday, 18 December 2009. The move was to align their timings with major Asian markets.

Today, the dollar rose to a three-month-high against the euro in Asia due to concerns over European bond markets and the US Federal Open Market Committee’s slightly hawkish statement overnight. The US currency is expected to post further gains if December’s Philadelphia Fed Manufacturing Index due later in the day beats market forecasts, highlighting the recovery in the American economy. Economists expect the index to drop to 16.40, a slight deterioration from the index’s previous result of 16.70.

Standard & Poor’s Ratings Services announced that it has revised its ratings criteria for covered bond programs, placed €1.46 trillion worth of such programs on CreditWatch, and signalled these programs may be downgraded in the next few months. This announcement made the markets more bearish over the euro. European banks often raise funds using covered bonds because of their low cost. A ratings cut possibility in bonds means European financial institutions may face difficulty raising funds in the near future, which may spur risk aversion.

Further, Standard & Poor’s announcement on Wednesday that it had cut Greece’s credit rating, as it has the widest budget deficit among the European Union nations, added further pressure on the euro.

During the day, Asia’s key benchmark indices in China, Japan, Indonesia, Singapore, Hong Kong and South Korea fell by between 0.14%-2.34% despite the US Federal Reserve saying that the US economy was improving.

On Wednesday, 16 December 2009, the Dow Jones Industrial Average was down 11 points while the S&P 500 and the Nasdaq Composite were up 1 point and 6 points respectively after the Fed offered no surprises in its latest statement.

The Federal Reserve kept its target range for its bank lending rate at zero to 0.25%, the same level since last December 2008, and it repeated its pledge to keep rates at exceptionally low levels for an extended period.

The Fed also said that the economy had continued to pick up and that deterioration in the labour market was abating. However, the Fed still predicts unemployment to remain high. The Fed statement said that household spending appears to be expanding at a moderate pace. The central bank said that the economic conditions, including low rates of resource utilisation, subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low levels of the Federal funds rate for an extended period. Taking note of the improving conditions for banks, the Fed said that it would shutter most of its emergency lending facilities on 1 February 2010.

In premarket trading, the Dow was trading 45 points higher.

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    Cement capacity utilisation on a downward trend

    The capacity utilisation in the Indian cement industry has fallen to 80% in November 2009 from a high of nearly 100% in March 2009. Analysts believe addition of new capacities and oversupply to be the main reasons for this downward trend

    Addition of new capacities—coupled with oversupply—has resulted in a downturn in capacity utilisation in the cement industry. While temporary price hikes have eased the situation, the broader capacity utilisation scenario looks bleak for the industry.

    Capacity utilisation in the cement industry has been declining since March 2009. As per data available on the monthly trend of capacity utilisation in the industry, the capacity utilisation in the industry has fallen to 80% in November from a high of nearly 100% in March 2009.

    Overall capacity utilisation across the country declined to 77.2% in October 2009 from 84.6% a year ago. In the region-wise data available, capacity utilisation rates have fallen significantly in the southern and western regions for the month of October 2009.

    In the southern region, capacity utilisation was 69.3% in October 2009, 17% less than 86.7% in October 2008. India Cements and Madras Cements are the among the cement companies who reported low capacity utilisation rates in October 2009. Similarly, capacity utilisation in the western region has fallen to 72.7% in October 2009 compared to 86.7% in October 2008.

    A positive growth in capacity utilisation was witnessed only in the northern and central regions. It increased from 82.2% in October 2008 to 85.6% in October 2009 in the northern region. Similarly, capacity utilisation in the central region increased from 87.95% in October 2008 to 93.5% in October 2009.

    Analysts attribute this downward trend in capacity utilisation to addition of new capacities and a pressure on the supply side. “The new capacity added is the first factor resulting in the decrease in capacity utilisation for various cement companies. Generally, new capacities in the first four to five months contribute only up to 50% of their total capacity. This is also because of the
    oversupply situation, where the capacity is higher, but the demand is lower,” said Priyakant Dave, research analyst, Sharekhan Ltd.

    However, Mr Dave pointed out that the oversupply situation has temporarily eased in certain regions due to a wagon shortage leading to a hike in prices.

    “Cement manufacturers have reduced their operating capacity utilisation to maintain the demand-supply situation. It has helped reduce their inventories,” added Amit Srivastava, research analyst, Karvy Stock Broking Services Ltd.

    “Companies like India Cements and Madras Cements are among the companies who witnessed reduced capacity utilisation. They have added a lot of new capacities in the past few months,” Mr Dave said. However, he pointed out that the volume of dispatches for these companies have also improved.

    As per a research note by Emkay Research, capacity utilisation in the Indian cement industry is expected to fall to 80.5% in 2010 from 91.5% in 2009, showing a marginal improvement of 80.6% in 2011 and recovering to 87% in 2012.

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    No takers for gold being sold by banks

    Investors, who bought gold from banks, are in a fix as leading jewellery houses are not ready to buy it and the yellow metal cannot be sold back to banks either

    Investors, who bought gold from banks, are in a fix as leading jewellery houses are not ready to buy it and the yellow metal cannot be sold back to banks either.

    "We are not allowed by the Reserve Bank of India (RBI) to buy back gold coins and bars sold by us," Amarjit Walia, assistant general manager, ICICI Bank, told PTI.

    Banks cannot function as traders of commodities, including gold, RBI\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\'s chief general manager for communications, Alpana Killawala told PTI over the phone when asked about the reason behind the policy. She said, "Mere selling does not make a bank a trader. Trading encompasses both selling and buying. It is a sensitive issue, we are looking into it."

    However, Mr Walia said, ICICI Bank may appeal to the RBI to review its policy to rescue investors. At present 23 banks are allowed by the RBI to import and retail gold.

    Leading jewellery houses like PC Chandra and Sons and the Tata-run Tanishq chain, however, refuse to buy gold sold by banks.

    A spokesman of PC Chandra & Sons said that it was a policy decision not to buy bank gold as "people can exchange such gold with our jewellery."

    Alok Ranjan, regional business executive of Tanishq, a chain with country-wide presence said, "We cannot disturb our floating cash. Consumers may exchange the gold for jewellery, but in that case we deduct a substantial amount to neutralise our cost in melting gold and adding alloys like silver and copper to make it fit for making jewellery."

    Anjali Jewellery director Ananya Chowdhury said, "Our position is the same as that of others. Moreover, we do not know whether the gold was genuinely procured or not. It is a security issue. We do not want to be dragged into legal hassles."

    Usually, prices of gold sold by banks are higher than the market price. "We sell 24-carat Swiss gold," an official of HDFC Bank said.

    The RBI spokesperson admitted that the central bank did not have any regulatory body to monitor prices.

    Gold sold by banks cost around Rs2,000/10g more over the price sold by goldsmiths.

    Bishnu Banerjee, a gold specialist of a leading jewellery house said, "Only Switzerland has the technology to purify raw gold up to 99.999%. It also has sophisticated weighing machines which can accurately measure the weight of gold."

    The purity of Indian gold, he claimed, was far below that of Swiss gold and weighing machines here are also faulty.
    Mr Banerjee said that banks in India were within their rights to charge more, but prices should not be that high. "Besides, all banks do not sell Swiss gold. Fixing higher prices for such gold (items) is a malpractice," he added.

    A college teacher, Anirban Dutta said, "I want cash, not jewellery. How come I am refused when I have a bank certificate, income-tax returns and other required documents? It appears they do not want participation of banks in the gold market.”

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