Ten Nations That Control the World’s Gold

Gold’s substantial rise in price should speak for itself. In dollar terms, gold returned 11.1% in the third quarter and was up by 16% year to date through the end of the quarter. The World Gold Council said that gold has a low stock market correlation through time. That was not the case in the third quarter. Gold still outperformed almost all the major equity markets in the largest gold-holding nations in 2012. 24/7 Wall St. analyzed how the gold rankings compare to each major nation’s gross domestic product (GDP) and how those figures compare to the top 10 holders of gold. What is surprising in some cases is how countries with the largest GDP are not necessarily the largest holders of gold. Two small nations, the Netherlands and Switzerland, are major holders of gold. Under the terms of the Central Bank Gold Agreement among major European states, many countries are supposed to be selling gold but are not.

The United Kingdom’s $2.43 trillion in GDP is the world’s seventh largest, but its gold holdings of 310.3 tonnes rank only 17th in the world and account for only 15.9% of its total foreign reserves. Does the old term “pound sterling” mean that the British banks really care more about silver? Another standout exception is Brazil, which has tiny gold reserves compared to its GDP. Its $2.5 trillion in GDP ranks sixth in the world, yet it holds only 33.6 tonnes of gold, or 0.5% of foreign reserves. Brazil ranks a surprising 52nd in the world among gold holders.

The International Monetary Fund is the third-largest official holder of gold, with more than 2,814 tonnes. The European Central Bank ranks right behind India, with 502.1 tonnes and 32.3% of its total foreign reserves held in gold. Central bank buying of gold was recently undertaken by Russia, Turkey, Ukraine and the Kyrgyz Republic. Turkey went as far as raising the gold reserve requirements for its commercial banks.

The World Gold Council report shows low borrowing costs and the support of financial markets spur gold accumulation. Gold is no longer just an inflation hedge; it is the key protection against a global race to devalue currencies, even if consumer prices are somewhat stable. Bonds pay historically low rates and stock market volatility has spooked many investors, so gold is becoming the true safe haven.

Major central banks are growing their balance sheets by purchasing trillions of dollars in paper assets. The World Gold Council said that research showed that a 1% change in money supply, six months prior, in the United States, Europe, India and Turkey tends to increase the price of gold by 0.9%, 0.5%, 0.7% and 0.05%, respectively. The Council also said that inflation is still several years off and many central banks have been more worried about deflation. Investors would be well advised to heed a warning from bond king Bill Gross, who told global investors to have exposure to hard assets, which will rise in value with inflation.

24/7 Wall St. has listed the 10 nations with the largest gold reserves, along with the percentage of total foreign reserves held in gold, each nation’s 2011 GDP and how it ranks in the world, and the local stock market performance. We have added analysis about how the potential unraveling of the euro could play into the future buying or selling of gold by European nations. For nations outside Europe, we have provided some historical context and predicted the path that their central banks are likely to follow in the years ahead.

 

10) India

> Gold reserves: 557.7 tonnes

> Pct. of total foreign reserves: 10.0%

> GDP: $1.82 trillion (10th highest)

 

While India ranks 11th on the World Gold Council list, it is 10th if you remove the International Monetary Fund. India has been a steady buyer of gold over time. That is likely to continue as the government needs to support its currency, even if the economy is volatile. India became an aggressive buyer in 2009, when it spent almost $7 billion to buy 200 tonnes of gold, which the IMF sold to raise capital. For the economy to support 1.2 billion people, the central bank must hold gold and hard assets. The Indian population is a large consumer of gold for jewelry and there is high demand for the precious metal to store wealth. India will thus continue to buy gold in the years ahead.

 

9) Netherlands

> Gold reserves: 612.5 tonnes

> Pct. of total foreign reserves: 59.8%

> GDP: $838 billion (17th highest)

 

It is surprising that the Netherlands has so much gold. But it is also important to recall that the country is a former colonial power and has a long history as a very wealthy nation. Its population of 16.7 million ranks 63rd among all nations, while its GDP is the 17th largest in the world. As with some European nations, the Netherlands did not sell all the gold provided for by the Central Bank Gold Agreement. Now that the Netherlands is under some of the same pressure as many other European nations, it is unlikely to be a big seller of gold. It may need that gold to protect itself if the euro comes unraveled.

 

8) Japan

> Gold reserves: 765.2 tonnes

> Pct. of total foreign reserves: 3.2%

> GDP: $5.86 trillion (3rd highest)

 

Japan has to hold large amounts of gold. The Bank of Japan has held interest rates at almost zero for about two decades. It recently sold gold so that it could pump about $200 billion worth of yen into the economy as stimulus after the tsunami and nuclear disaster threatened to send Japan back into recession. At some point in the future, Japan may need to buy that gold back to support its large monetary base. Until then, the yen remains one of the stronger global currencies, which makes exports more expensive. Japan’s population of 127 million is aging rapidly and birth rates are extremely low.

 

7) Russia

> Gold reserves: 936.7 tonnes

> Pct. of total foreign reserves: 9.6%

> GDP: $1.85 trillion (9th highest)

 

Russia continues to buy gold as its global economic ambitions grow. A previous 24/7 Wall St. analysis showed that Russia’s reserves were 784 tonnes in early 2011 after it bought 120 tonnes in the first 10 months of 2010, more than 100 tonnes in 2009 and close to 70 tonnes in 2007. The World Gold Council reported that Russia has added more gold, so that reserves likely will rise yet again. Russia is extremely wealthy in natural resources, and president Vladimir Putin and his allies want it to become more of an economic superpower. With a population of 142 million and Russia’s GDP of $1.85 trillion, its holdings of gold are likely to surge.

 

6) Switzerland

> Gold reserves: 1,040.1 tonnes

> Pct. of total foreign reserves: 11.5%

> GDP: $660 billion (19th highest)

 

Switzerland is the world’s private banker and so must be a top holder of gold. Still, it is amazing to consider that its population is barely 7.9 million and it ranks 95th in the world for population. Also, its dollar-adjusted GDP of $660 billion ranks only 19th. Switzerland sold gold from 2003 to 2008, right before the huge run up in gold prices. If Switzerland needs to devalue its currency to remain competitive, it can always sell more gold. Unless global banking disappears entirely, the Swiss will remain one of the largest holders of gold in the generations ahead.

 

5) China

> Gold reserves: 1,054.1 tonnes

> Pct. of total foreign reserves: 1.7%

> GDP: $7.3 trillion (2nd largest)

 

China’s economy has stumbled to the point that its official growth rate of 7.4% in the third quarter may feel like a recession. China has the ambition of becoming the largest economy in the world. It already is considered the world’s manufacturer. China must have hard assets along with its U.S. Treasury bond holdings to keep its currency pegged to the U.S. dollar. It has the world’s largest population, with more than 1.3 billion people, yet its GDP of almost $7.3 trillion is still not even half that of the United States. Whenever the yuan truly floats, China will have to have more hard assets and more transparent economic readings to support it. China added some 454 tonnes of gold between 2003 and 2009. When it finally adjusts its official gold holdings in the coming months, they are likely to be higher again.

 

4) France

> Gold reserves: 2,435.4 tonnes

> Pct. of total foreign reserves: 71.6%

> GDP: $2.77 trillion (5th largest)

 

France finds itself in an interesting position. Socialist president Francois Hollande is on a quest against many of the austerity measures implemented by his predecessor, Nicolas Sarkozy. France does not want to lose its “second-best economy” status in the eurozone, behind Germany. It will have to pay for the new economic measures and this poses a particular problem because the extremely wealthy, who are being targeted for high taxes, may continue to leave the country. France may ultimately need to sell gold. Although it is part of the Central Bank Gold Agreement as a gold seller, it may need a cushion in case the euro faces an outright breakup.

 

3) Italy

> Gold reserves: 2,451.8 tonnes

> Pct. of total foreign reserves: 72.0%

> GDP: $2.2 trillion (8th largest)

 

Italy is a financially troubled nation, and it is truly too big to bail out. By many measures it is the greatest economic risk to the rest of Europe and the balance of the major world economies. Italy’s 61 million population ranks 23rd in the world, but its dollar-adjusted GDP of almost $2.2 trillion ranks it as the 8th largest economy. The Italian government was also part of the Central Bank Gold Agreement, but there is a real conundrum now. Italy could sell gold to raise capital, but then it would lose its cushion if the euro unravels. It is almost impossible to imagine that Italy would be a buyer of gold because it has too many pensioners and benefits to pay for as is.

 

2) Germany

> Gold reserves: 3,395.5 tonnes

> Pct. of total foreign reserves: 72.4% of foreign reserves

> GDP: $3.6 trillion (4th largest)

 

Despite forced gold sales from ECB nations in the past, Germany likely has to maintain its underlying asset base as it is the anchor of the euro. The euro after all, is a watered-down version of the Deutsche mark. Germany’s population of 81 million ranks 16th in the world, but its $3.6 trillion adjusted GDP ranks fourth. What could happen if Germany started accelerated gold sales to buy up even more paper assets from the PIIGS (Portugal, Italy, Ireland, Greece and Spain) and more paper assets of their banks? The initial reaction might be positive for the eurozone economies. However, Angela Merkel and her successors might be left with high inflation without hard assets as a cushion. Germany is supposed to be a gold seller under the Central Bank Gold Agreement, but it is likely to hold what it can as a buffer in case the euro breaks up or in case it needs to raise quick bailout cash for the PIIGS.

 

1) United States

> Gold reserves: 8,133.5 tonnes

> Pct. of total foreign reserves: 75.4%

> GDP: $15 trillion in GDP (the largest)

 

It should be no surprise that the U.S. is the largest holder of gold as the dollar is the global reserve currency and the U.S. has by far the largest GDP of any nation. The growth of the Federal Reserve’s balance sheet can only be sustained without dire consequences if it is backed by hard assets like gold. Imagine if the conspiracy theorists are right and that Fort Knox and other repositories do not have gold in them. It is this gold, the massive U.S. GDP and America’s underlying wealth of natural resources that keep the dollar as the world’s reserve currency. If the World Gold Council is right in its assessments of inflation and gold, then the U.S. is likely to hold its reserve currency status for quite some time, even if credit rating agencies continue to downgrade the country.

MORE PAIN FOR INDIAN BANKS AHEAD

CRISIL believes that loans restructured by Indian banks may increase sharply to Rs.3.25 lakh crore between 2011-12 and 2012-13, against the earlier estimate of Rs.2 lakh crore. Loans of Rs.1.6 lakh crore have already been restructured in 2011-12 and in the first quarter of 2012-13. The majority of restructuring will be in loans to the state power utilities (SPUs), and the construction and infrastructure sectors. The rise is a result of significantly higher funding challenges being faced by companies with large debt.

In recent months, availability of unsecured short-term loans from Indian banks has diminished. This is exacerbating refinancing and liquidity pressure, especially for the SPUs. This will lead to a significant increase in restructuring of SPU loans to nearly Rs.1.5 trillion. So far, SPU loans of Rs.0.6 lakh crore have been restructured. Furthermore, inability to raise adequate equity in a timely manner is straining the balance sheets and financial flexibility of developers in infrastructure and construction sectors, resulting in an increased likelihood of restructuring. Other vulnerable sectors include iron and steel, textiles, and engineering.

The proportion of restructured loans in this period will be high at around 5.7 per cent of banks’ advances as on March 31, 2013 according to CRISIL. Around Rs.0.50 lakh crore of these restructured loans may slip into NPAs, though this will depend on the terms of restructuring and fundamental viability of the projects and the companies. These slippages can aggravate the already stressed asset quality of banks by further increasing NPAs by 50 to 75 basis
points beyond March 2013. The loans to SPUs are unlikely to slip into NPAs, given the support expected from state and central governments.

Despite continued weak growth and profitability in the corporate sector, the large restructuring will help limit the increase in the banks’ NPAs in the near term. According to CRISIL’s estimates, the lower GDP growth of 5.5 per cent expected in 2012-13 may result in increase in banks’ gross NPAs to 3.5 per cent by end-March 2013 from around 3.0 per cent at the end of June 2012. The increase will be driven largely by delinquencies in the micro, small and medium enterprises, and agriculture and allied sectors.

An Economy is only as good as its statistica​l system

The government will announce the first quarter gross domestic product (GDP) numbers on Friday, and speculation is running high whether growth will be lower than the 5.3% notched up in the January-March 2012 quarter. What is very interesting is that in the meantime, the government has, rather quietly, revised downwards earlier GDP estimates for fiscal years 2009 and 2010.Recall that when GDP growth slipped to 5.3% in the January-March 2012 quarter, there was much adverse commentary about it being even lower than growth during the third and fourth quarters of fiscal 2009 (FY09), after the Lehman Brothers crisis. That didn’t reflect too well on the government, because while the lower growth in FY09 was the result of a global crisis, the current slowdown is largely a home-grown one.Well, growth in the fourth quarter of FY09 has now been revised downwards by the Central Statistics Office (CSO) from the earlier 5.9% to a much lower 3.5%. Gaurav Kapur, a senior economist at Royal Bank of Scotland NV in Mumbai, pointed out the revisions and drew attention to its magnitude. It’s a huge revision and once again calls into question the quality of data on which the GDP estimates are based.The CSO website says that the new series of the Index of Industrial Production (IIP) has been used for computing the data. But strangely enough, there’s been no revision in the GDP growth for the third quarter of FY09, which remains at 5.8%. The revised IIP data seems to have changed the GDP growth for the fourth quarter of FY09, but not for the third quarter.As the chart shows, growth for the first quarter of FY10 has also been revised down from 6.3% to 5.7%. That’s not such a big change, though, compared with some of the other revisions. Consider, for instance, the revisions for the first quarter of FY09 from 7.9% to 9.8%, or for the fourth quarter of FY10 from 9.4% to 11.2%.What was the reason for the big change during the fourth quarter of FY09? Well, they’ve revised down the growth rates in all three sectors—agriculture, industry and services. Growth in industry has been revised down from 0.8% to -3.6%.When the GDP growth numbers for the first quarter of FY13 are announced on Friday, if it falls below the 5.3% recorded during the previous quarter, as several economists believe it will, even then the growth rate won’t be lower than during the post-Lehman period. As an economist pointed out, we can now say that growth isn’t as bad as in the post-Lehman quarters, at least until the numbers are revised again.More importantly, when they announce the GDP growth numbers on Friday, where’s the guarantee it won’t be revised later by more than 2 percentage points, just as they did for the fourth quarter of FY09? And if the magnitude of error is so high, what’s the point of taking any decisions based on this kind of data? One can only express one’s sympathies to the Reserve Bank of India (RBI). Simply put, the credibility of the GDP data is at stake.

Rural Indians outpace urbanites in spending growth

For the first time since economic reforms began two decades ago, consumption in rural India is

growing faster than in urban India. Given the large size of India’s rural population, the value of goods

and services consumed has always been greater in rural India, but urban India had narrowed the

differential during most of the last decade by growing at a faster pace. Between 2009-10 and 2011-

12, additional spending by rural India was Rs.3,750 billion, significantly higher than Rs.2,994 billion

by urbanites. For sustaining the rural boom, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas.

Growth in rural consumption was fuelled by a rise in household incomes due to greater non-farm job

opportunities and government initiated employment generation schemes. NSSO data shows that

during 2004-05 to 2009-10 rural construction jobs rose by 88 per cent, while the number of people

employed in agriculture fell from 249 million to 229 million. In addition, migrants from villages to urban

areas who benefitted from job opportunities in infrastructure and construction projects increased

remittances to their families in rural India, which boosted consumption.

A notable phenomenon in rural consumption is a shift from necessities to discretionary goods. About

one in every two rural households now has a mobile phone. Even in India’s poorest states such as

Bihar and Orissa, one in three rural households has a mobile phone. Nearly 42 per cent of rural

households owned a television in 2009-10, up from 26 per cent five years earlier. Similarly, 14 per

cent of rural households had a two-wheeler in 2009-10, twice that in 2004-05. For India, a young

population, rising income and low penetration of many consumer durables means that rural

consumption has the potential to remain an important source of demand.

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) fuelled job

creation on an unprecedented scale and provided an opportunity to rural households to supplement

their traditional farm income. Nearly 27 per cent of rural households availed employment under

MGNREGS in 2009-10. Wages under MGNREGS increase with retail inflation: consequently, rural

wages have risen faster than inflation since 2007-08.

Source: CRISIL

Five Reasons Ayn Rand Is Bad for Business

For decades, CEOs have touted Ayn Rand as a "must-read" for staff and employees alike. Here are five good reasons that's a bad idea — if you want your business to be successful.

1. Rand focuses employees on money. Rand practically worshipped the almighty dollar  seeing the acquisition of wealth as a goal worthy in and of itself. Unfortunately, when that attitude spreads throughout an organization, a higher salary becomes the only motivation that really works. That means top workers will, of course, leave the moment they get a better offer elsewhere.

2. Rand encourages selfishness. For Rand, there is no higher good than pursuing one's own happiness. The problem with that philosophy is that it encourages workers to view their personal success as being far more important than the group's success — and that kind of self-centered thinking is fatal to getting team members to work together.

3. Rand creates fanatics. While some Rand fans have a nuanced view of her, there are plenty of people who glom onto her writing with evangelical intensity. Their quest to convince everyone else in the workplace that Rand was the greatest thinker and philosopher of the 20th century (or maybe of all time) is distracting, annoying and counter-productive.

4. Rand alienates the religious. Rand's value system is the antithesis of Judeo-Christian teaching. For example, while Jesus says "blessed are the poor," Rand calls them "moochers." Top-quality workers who value their religious faith might feel out of place in a work environment that seeks to canonize Rand's brand of atheism.

5. Rand discourages charitable giving.Rand devotees criticize CEOs who give to charity because "you have no moral obligation to 'give back,' because you didn't take anything in the first place." For many workers, though, an altruistic desire to "give back" is a strong motivator. Such workers respect leaders who know that others contributed to their success.

Source: Reports

IDBI PAVES THE WAY FOR MORE SGD BOND ISSUANCES

IDBI Bank made the first publicly listed benchmark Singapore Dollar bond issue from India on August 21, 2012.  The transaction received overwhelming response and the order book was oversubscribed by 12 times.  The SGD 250 million bond issue is for a 3 year maturity and carries a fixed coupon of 3.65% p.a. This landmark issue by IDBI Bank will pave the way for other SGD bond issuances by Indian issuers.
This transaction is significant to India and IDBI Bank on several counts:
i) It is the first benchmark public bond transaction by any Indian entity in the Singapore Dollar bond market.
ii) It has opened up a new source of funding and investor diversification for Indian issuers.
iii) IDBI Bank is the only issuer from India to have tapped the Dim Sum (CNH) and Singapore Dollar (SGD) bond markets and is the only bank from India to have accessed the Swiss Franc (CHF) Bond Market in FY 2013.
iv) The transaction received a record oversubscription of 12 times which is the highest for any Indian bank.
v) The issue achieved the tightest pricing for any benchmark 3 year senior bond issue by any bank in the SGD market during 2012 year till date.
IDBI Bank undertook road shows in Singapore on August 14 and 15, 2012 which were very well attended by a diverse set of SGD focused private banks, asset managers and banks who were eager to hear the India and IDBI Bank story.  The highly impressive and well received road shows led to some large accounts indicating initial interest in an issuance and IDBI Bank decided to capitalize on the same despite significant volatility in global credit markets. 
The transaction was announced in the morning of August 21, 2012 as a SGD benchmark 3 year bond in the 4% area.  The books grew rapidly and soared to over SGD 1 billion within 2 hours of opening.  This enabled the announcement of a significantly tighter final guidance of 3.70% area post lunch in Singapore.  The book continued to grow to over SGD 3 billion, allowing the final pricing outcome of 3.65% at the tight end of the
final price guidance.  This price tightening of 35 bps from the initial price guidance is unprecedented.
The transaction attracted interest from a diversified array of investors including private banks (65%), asset managers (17%) and banks (18%).  Around 78% of the book size came from Singapore, with the balance 22% being from Hongkong and other geographies. 
DBS Bank, HSBC Bank and Standard Chartered Bank acted as Joint Book Runners and Lead Managers to the transaction. 

RIVALRY BETWEEN CHIDAMBARAM AND SWAMY SPANS DECADES

It was 1977 and the Janata Party had astonished media pundits by coming to power on the distaste created by the Emergency for the Congress party. A slim lawyer from Tamil Nadu shyly came up to the Stormy Petrel of the period, Subramanian Swamy, who had just been elected to the Lok Sabha from Bombay, the city his Parsi wife Roxna regarded as home. During the Emergency, Swamy had stealthily entered Parliament House, quickly signed the attendance register, and vanished before policemen could apprehend him. Swamy was, because of his opposition to the Emergency, one of that period's Most Wanted.
Although regarded with less than affection by A.B. Vajpayee, he was a favourite of Morarji Desai, and had come back to India after giving up a teaching career at Harvard. Palaniappan Chidambaram, the lawyer from Tamil Nadu, was one of the editors (together with N. Ram of the Hindu) of the Radical Review, a left publication strongly in favour of nationalisation of private assets (the Hindu and the Chidambaram family's assets presumably excluded). Chidambaram reminded Swamy that he was one of his appreciative Harvard pupils, only to get a cold stare from the newbie celebrity, and a "who are you?" look
Although it failed with Swamy, Chidambaram's youth and clipped accent, so different from the denizens of Mylapore or Egmore, impressed Rajiv Gandhi. He was inducted into the Central Council of Ministers in 1984, as Minister of State in the Home Ministry, no less. Some of his joy at the elevation in his status was probably tempered by the sight of the forgetful Harvard professor, who seemed to have won the affection of the PM to an even greater degree than Chidambaram. What was Swamy doing, meeting the PM? Discreet warnings about the opposition element who had "opposed Indira Gandhi" had little effect on Rajiv Gandhi, who liked to surround himself with those who had taken a political line different from that of the Congress party. Swamy continued to meet with the PM regularly, and even do secret missions for him, tasks that were not confided to the Minister of State by either Swamy or the PM.
The situation was made intolerable for Chidambaram by (the then Rajya Sabha MP) Swamy raising the Hashimpura massacre in Parliament in 1987. The killing of more than 40 Muslim youth by the UP Provincial Armed Constabulary had sickened the nation, and both officials as well as politicians sought to distance themselves from the foul deed. Swamy did not allow Chidambaram such a luxury. He accused the minister of doing an "aerial reconnaissance" of the killing field, the implication being that the lawyer-turned-politician was behind the massacre. This was crossing a huge red line, and it was dangerous to be so foolhardy with Chidambaram, whose memory for slights rivals that of a Pathan tribal elder.

Although on the record, backers of the current Union Home Minister deny any role in Swamy's travails, others claim that Chidambaram waited for an opportunity to strike back. He was clearly patient, holding his fire when Swamy briefly became Commerce Minister in the Chandrashekhar government. The Tamil Nadu politician, whether because of the presence within it of Swamy or not, was one of the most persistent advocates of the Congress party withdrawing support to Chandrashekhar, advice that Rajiv Gandhi finally took in 1991, forcing the election that caused him his life.
Palaniappan Chidambaram is aware that he is a gift of nature to humanity, and is generous with advice to acolytes. It must rankle that Swamy has never, not even once, turned to him for guidance. To Chidambaram's chagrin, although he was Minister of State for Commerce with independent charge in the Narasimha Rao ministry, Swamy was made chairman of the GATT Commission set up to assist in the negotiations with that international trade body. Worse, he was given Cabinet rank, a slight that Chidambaram held against Rao thereafter, finally breaking with the PM in 1996 in the company of his old benefactor, Govindaswamy Karuppiah Moopanar. When H.D. Deve Gowda formed a government in 1996, Chidambaram became the Union Finance Minister.
Soon afterwards, a chance presented itself to send Subramanian Swamy to jail. The stormy petrel of Emergency days had taken over in 1997 as chairman of a trust set up by "spiritual guru" Chandraswamy, after Dr P.C. Reddy (the founder of the Apollo Group) resigned after Chandraswamy was targeted by the Finance Ministry for FERA violations, the godman's real offence being his closeness to one of Chidambaram's betes noire, former Prime Minister Rao. Although Swamy had just been inducted into the trust, and therefore had no role in any of the transactions being investigated, an arrest warrant was issued for him. Was it to be checkmate? Would Chidambaram succeed where Indira Gandhi had failed during the Emergency? Unfortunately for him, before Swamy could be arrested, Prime Minister Deve Gowda learnt of the warrant, and got it cancelled. Till recently, Swamy had been Gowda's nominal boss as president of the Janata Party, of which Gowda had been the Karnataka state boss, till he quit to join hands with the Janata Dal.
While Chidambaram may be a Pathan in his outlook, Subramanian Swamy is Sicilian. Soon after escaping from the prospect of jail in 1997, he filed a complaint against Chidambaram, alleging that the Finance Minister had misused his position to get promoters shares in Fairgrowth, an investment subsidiary of a nationalised bank. The Delhi High Court issued notice to the minister, who admittedly had been allotted the shares. However, masterful arguments by counsel Arun Jaitley led to the court asking Swamy for a fresh complaint, because of a technicality. Fortunately for Chidambaram, the Lok Sabha elections took place soon afterwards, in 1998, and Swamy lost interest in pursuing the case. Litigation is a full-time job in India, not a task one can attempt in one's spare time.
Although there were rumours that Chidambaram would join the BJP in 2003, a year later he re-emerged as Finance Minister in the Congress-led government headed by Manmohan Singh. From that lofty perch, he could perhaps afford to ignore Private Citizen Swamy, who by the 1999 polls was out of both government as well as Parliament. However, the converse was not true, especially after 2008, when a group of Telecom Ministry officials secretly called on Swamy at his New Delhi residence and gave him details of what they claimed was massive fraud in the allocation of 2G spectrum. By the beginning of 2011, Swamy became convinced that the scam had been perpetrated by both Raja and Chidambaram, with the Congress stalwart being the "senior partner". According to Swamy, it was Chidambaram who told Raja about the escape route that the companies that had been allocated spectrum could take to get over the three year lock-in period. Rather than sell the spectrum, they could sell the entire company, and thereby the spectrum.
as Chidambaram told in writing by then Home Minister Shivraj Patil about security concerns regarding Etisalat and Telenor, the two foreign companies that bought two of the Indian entities that had been given 2G spectrum by A. Raja sans an auction? Are there minutes of meetings between Raja and Chidambaram that show that the decisions taken were arrived at jointly, rather than (as numerous media plants claim) Chidambaram opposing Raja? Swamy says yes. On 26 August 2011, Swamy went to the Supreme Court asking for Chidambaram to be included as a culprit in the 2G scam. The very next day, the Crime Branch of the Delhi police (which directly reports to the Home Ministry, headed by Chidambaram since 2008) registered an FIR against Swamy for an article that he had written in DNA. The game of Catch between the two Tamil politicians thus goes on, so far with neither man succeeding in sending the other to jail.

Source: Reports

DICHOTOMY BETWEEN HOUSING PRICES AND LOAN GROWTH

HOUSING PRICES RISE BUT LOAN GROWTH SUBDUED

UP UP AND AWAY
As per a study conducted by the National Housing Bank housing prices have risen by up to 10.5 per cent in 16 major cities in India during the April-June period. NHB 'RESIDEX' tracks the movement in prices of residential properties on a quarterly basis since 2007. The maximum increase in housing prices was observed in Pune (10.5 per cent) followed by Bengaluru (8.7 per cent), Patna (8.6 per cent), Ahmedabad (6.4 per cent) and Ludhiana (5.3 per cent). Housing prices rose by 4.1 per cent in Lucknow, while homes became costlier in Mumbai by 3.7 per cent, Delhi and Kolkatta by 2.6 per cent each, Bhubaneshwar, Bhopal and Chennai by 1.7 per cent each, Surat and Guwahati 1.2 per cent each, and Vijaywada and Kochi by 1.1 per cent each. According to a recent Knight Frank report, Indian real estate prices rose 12% in the past year, the third highest in the world.

LOAN GROWTH SUBDUED
Reserve Bank data shows housing loan growth slowed to 12.1% for the year ended March 2012 from 16% in the previous year. Also, before real estate prices peaked in 2008, big lenders were managing to grow their home loan portfolio at an annual average of 25%. Loan growth at LIC Housing Finance slipped to 17% in 2011-12 from 28% a year ago, forcing the company to set a lower target of 20% for the current fiscal. State Bank of India's housing loan disbursement grew 15% in 2011-12 against its target of 20%. State Bank of India (SBI) has revealed that it has cut its annual home loan growth target by up to 10 per cent age points. The biggest lender of the country has to revise their target due to sluggish growth in property market. Bank management stated that earlier target was 25 per cent growth in its home loan book. However, due to constant drop in home registrations, they now expect that the home loan segment will grow by only 15-20 per cent.

INFLATION DIPS: BUT THE RBI MAY NOT ACT AS YET

A SLIGHT RELIEF
Inflation for the month of July fell more than expected to 6.87% y-o-y in July from 7.25% in June (Consensus: 7.2%). The relief was primarily led by a much lower-than-expected increase in primary inflation (mainly food and minerals prices) even as core inflation jumped sharply.

CORE INFLATION STILL HIGH
Core inflation (WPI manufactured ex-food) rose to 5.4% y-o-y in July from 4.8% in June. Key hit came from higher global commodity prices and the lagged effect of INR depreciation. Meanwhile, food inflation fell more than expectations and eased to 8.7% y-o-y from 9.0% as prices of vegetables contracted. Excluding volatile vegetable prices, food prices in India continued to rise.

IS THIS AN ABERRATION ?
The current primary (food and non-food) inflation numbers do not yet seem to reflect ground reality, and according to most economists the July reading may get revised up as we start to factor in a deficit monsoon. Supply shocks led by a deficit monsoon and higher global food prices may push primary (food and non-food) inflation higher in the coming months. This, along with an impending fuel price hike and a delayed adjustment to electricity prices, suggests that the July month reading is unlikely the start of a trend.
Most economists still have kept the full year WPI estimates unchanged between 7.5-8%

INDIA'S INFRA STORY: BETTER LATE THAN NEVER

CHALLENGES FACING INFRA DEVELOPMENT: JAYPEE GROUP'S SAGA

India's longest 6-lane access-controlled expressway was finally inaugurated last week after which promises to cut travel time between the Taj Mahal and Delhi by more than half. Originally conceived as the Taj Expressway project during 2001, it could not take off for another two years due to a change in the regime. It was revived again in 2007. Still the project took a little around 10 years to complete with its fair share of controversies.  The six-lane highway is built under the public-private partnership model and is the biggest such project in the country. Jaypee Infratech, the company that has built the project, has a 36-year concession (rights) over the it.

LINK TO FULL INTERVIEW: INDIA'S INFRA STORY: BETTER LATE THEN NEVER

A YEAR OF U.S. DOWNGRADE: AND LIFE GOES ON

A YEAR OF WORRY: OR WAS IT ?

Exactly a year ago in August 2011...rating agency Standard and Poor's shocked the world by announcing a rating cut of the US of 'A', stripping away the coveted AAA bond rating. The downgrade, unprecedented in nature threatened to turn the world upside down, drive up U.S. interest rates, pushing the dollar down, driving bond yields to exorbitant levels and scaring investors away from stocks and into that traditional refuge for the fearful: gold. Atleast most economists expected this sort of a reaction, had we been living in a perfect world. Exactly a year has passed, long-term interest rates are sharply lower, the Dow industrials reversed course and is now firmly above 13000. The dollar has rallied, and gold prices are down from where they were when S&P lowered the rating. It is difficult to imagine a more decisive repudiation of S&P's warning that the U.S. government might not be able to pay its bills.

ASSET CLASS                  % CHANGE
Dow:                                  +14.4%
Gold:                                  -3.21%
Crude:                                -1%
Dollar:                               +6%

EMERGING MARKETS: NOT IN GREAT SHAPE

Equity experts propogated that with the developed world in turmoil, global funds and investment giants would have no option but to seek refuge in Emerging Market equities which offered relative value with slightly more risk. But the reality seems to be far apart. Emerging markets such as India and brazil have barely moved in these last 12 months with ahigh interest regime prohibiting any recovery coupled with steep interest burden for the corporate sector. China still faces the prospect of a hard landing despite the monetary authority pinpointing to more easing.

MARKET                         % CHANGE
India:                                +2.5% 
Brazil:                              -0.88%
China:                               -17.95%

THE NAME IS 'BOND'

Despite S&P's warnings and the political stalemate, investors still want U.S. Treasurys. Given economic turmoil in Europe and uncertainty elsewhere, U.S. government debt and U.S. dollars look like the safest bet around. That is why the interest rate, or yield, on 10-year Treasury notes has fallen from 2.58 on Aug. 5, 2011 to lows of 1.5 percent. At a recent auction of German bunds the two-year note yields fell below zero for the first time as the euro-region’s deepening crisis saw investors willing to sacrifice any return in exchange for holding the region’s safest assets.

BOND YIELDS                              % CHANGE
US 10 Year:                                     -39.5%      
German Bund 10 Year:                   -53.36%  
Spain 10 Year:                                 +8.03% 
Italy 10 Year:                                  -1.32% 
Greece 10 Year:                              +68.89%

WANT TO IMPROVE CORPORATE PERFORMANCE: INCLUDE MORE WOMEN ON BOARD

CORPORATE BOARDROOMS: NO MORE A MALE BASTION

For years women' rights groups have been arguing in favour of giving women more say and power in corporate boardrooms, and now a study has revealed that companies with women on their boards performed better in challenging markets than those with all-male boards suggesting that mixing genders may temper risky investment moves and increase return on equity.

FASCINATING RESULTS

Shares of companies with a market capitalization of more than $10 billion and with women board members outperformed comparable businesses with all-male boards by 26 percent worldwide over a period of six years, according to Credit Suisse Research Institute. The research, which includes data from 2,360 companies, shows a greater correlation between stock performance and the presence of women on the board after the financial crisis started four years ago. Net income growth for companies with women on their boards averaged 14 percent over the past six years, compared with 10 percent for those with no female director, according to the Credit Suisse study, which examined all the companies in the MSCI ACWI Index.

RISK AVERSION THE KEY

Stocks of companies with women on boards tend to be a little more risk averse and have on average a little less debt, which seems to be one of the key reasons why they’ve outperformed so strongly in this particular period.
The net-debt-to-equity ratio at companies with at least one female director was 48 percent, compared with 50 percent at all-male boards, and the study showed a faster reduction in debt at businesses with women on the board as the financial crisis and global economic slowdown unfolded.

WOMEN CALL THE SHOTS

While female representation increased to 59 percent last year from 41 percent at the end of 2005, countries such as Japan and South Korea are lagging behind the U.S. and Europe, which has added female representation the fastest over the six-year period. Larger companies have a higher proportion of women on their boards, as well as those in the health-care industry -- 73 percent have at least one female director -- and industries close to consumers, the study shows.

TIME TO BE MORE INCLUSIVE

The materials and information-technology sectors have the highest percentage of male-only boards, both at more than 52 percent, according the report. Traditionally some industries have just never really been seen as the domain of a woman, like some of the mining industries or heavy-capital goods industries, according to the report.
In the U.S., 36 percent of companies still have no women on their boards of directors, according to a report by researcher GMI Ratings on gender diversity released today. The average corporate board has about nine members.

INDIA AMONG WORST COUNTRIES FOR ENTREPRENEURS

Rampant corruption, lack of adequate capital and credit, and poor technology and training have impeded the creation of small businesses in India. Moreover the recent economic slump and capital constraints has impeded the creation of small businesses.

According to a Gallup poll India has been ranked last in Asia in promoting entrepreneurship. According to the survey, of 5,000 adults in India from January to March of this year, 16 percent of Indian adults own a business and half of those owners are solo operators. The survey found that business thinking, optimism and persistence – all important for entrepreneurs — are common traits among Indians. Small and medium-sized businesses contribute 8 percent of India’s gross domestic product and employ 60 million people in 26 million enterprises, according to a January 2010 government report. Nearly half of those surveyed by Gallup said that the government is a significant stumbling block to starting a business. Seven out of 10 Indians said that corruption is widespread in government and 60 percent said that corruption is common in business. Training and mentorship are also crucial for startups, but only 37 percent of current business owners and 28 percent of those seeking to start a business said that they know someone who can offer advice about business management, the Gallup poll found. A recent study by the World Bank ranked India at 166th rank among 183 countries in terms of the ease of starting a business.

The survey results were released just as India experienced the two worst blackouts in human history and as foreign investment in India has slowed in part because of concerns about changes in India’s tax policies.

A NEW PARADIGM IN SHAREHOLDER ACTIVISM

TCI TAKES COAL INDIA TO COURT: THREATENS TO SUE THE BOARD

TCI ON THE OFFENSIVE

The Children's Investment Fund (TCI) which owns about 1% stake in Coal India today threatened to sue the entire board of the public sector behemoth after filing a writ petition in the Delhi High Court alleging breach of fiduciary duties by Coal India. In its petition TCI has argued that coal prices are completely de-regulated and the Indian Coal Ministry does not have legal authority to interfere with the discretion with CIL as it has been doing on a regular basis. The petition also argues that the January revision in the price is also illegal being a direct consequence of the illegal and invalid instructions of the Ministry. In its petition TCI has also sought a direction by the High Court to the Ministry not to interfere with the pricing mechanism in any manner. TCI also believes that the FSA system of distributing coal has an inbuilt risk of engendering corruption and has drawn strong parallels between the corruption related to the allocation of the 2G spectrum and selling FSA (Fuel Supply Agreement) coal below market prices.

TCI THREATENS TO SUE THE BOARD

In addition to its writ action in the High Court TCI has also threatened to sue the Board of Coal India for breach of fiduciary duties and abuse of minority shareholders. It alleges that the directors' continued failure to expedite ramp up of coal washing  capacity and raising coal prices is further evidence of their unwilligness and inability to run Coal India to the best of shareholders' interests.

Q1 EARNINGS REVIEW: NET INCOME SURPRISES

SUMMARY

Deutsche Bank's analysis of fiscal first quarter earnings season shows profits for corporates well above estimates helped by a mix of FX gains, MTM gains on investments and higher other income.

NET INCOME (PROFIT AFTER TAX) SURPRISES
The Jun-qtr earnings season is more than midway through, and till date aggregate numbers under coverage have been broadly in line with estimates on Revenue and EBITDA (core earnings). However aggregate net income has come in 7% ahead of estiamtes on account of a favorable mix of FX gains/MAT credit entitlement (Cairn India), MTM gains on investments (Hindustan Zinc, Bank of India), dividend income from subsidiaries (L&T), lower interest costs (Sterlite) and higher other income (HUVR, Sterlite) across different companies. Positive surprises on net income have outnumbered negative surprises by a ratio of 62:38, while positive and negative surprises on EBITDA have been evenly distributed.

KEY TRENDS
(1) While Government owned public sector banks have been severely impacted by asset quality concerns, private sector banks have performed reasonably well.

(2) Pricing and mix have continued to improve for most car companies, even as margin has come under pressure due to rupee depreciation and SG&A costs.

(3) Oil companies have suffered from lower refining/petchem margins while the gas segment has been impacted from low volumes.

(4) Steel/Aluminium margins have been better than expected while copper producers has disappointed on TC/RC realizations.
(5) Cement realizations have been robust, rising by 12-14%.

(6) Capital goods continued to witness margin pressure and working capital stress.

(7) Utility companies have benefitted from better execution and better coal availability.

(8) Price competition has resumed in Telcos even as minutes of usage growth remain stable.

(9) INR depreciation of 17% yoy meaningfully supported numbers of IT and Pharma companies.
Source: Deutsche Bank Markets Research

WORKING CAPITAL CRUNCH FOR CAPITAL GOODS COMPANIES

DIFFICULT TIMES

A study conducted by credit rating agency CRISIL (subsidiary of Standard and Poor's) shows that the working capital requirement for the capital goods sector in India have surged at a 5 year high. The pressure on this sector is primarily due to the deferment of large capital investment plans since 2011-12 (refers to financial year, April 1 to March 31) by end user industries such as power utilities. The resultant build-up in inventory and delay in release of payments by customers has led to tight liquidity conditions within the sector. The reasons for deferment in projects include demand slowdown, increase in project costs and interest rates, and lower cash flows.

WORKING CAPITAL NEEDS SURGE

Working capital requirements have increased substantially; the gross current asset (GCA) days of a sample of 50 listed mid-sized players have increased to 370 as on March 31, 2012, from 280 as on March 31, 2009, the highest in the past five years. GCA days refer to gross working capital expressed as number of days of sales and the sample of 50 companies accounts for a-third of the revenues of all capital good entities covered by CRISIL.

HIGH COST DEBT PILING ON

A large portion of the incremental working capital needs has been funded either through delayed payments to suppliers or through high-cost short-term debt. Prevailing high interest rates for short term borrowings have led to a steep drop in  the interest coverage ratio (profit before depreciation, interest, and tax/interest, and finance charges) of companies covered by CRISIL. The ratio of cash flows from operations to total debt also declined sharply, to a negative 0.30 times from 0.07 times during the same period thereby indicating that the cash from operations is inadequate for servicing debt payments.


Source: CRISIL

INDIAN AUTO SECTOR PROFITS UNDER THREAT: FITCH

NOT IN AUTO MODE ANYMORE

Fitch ratings expects profitability for Indian auto suppliers in H2' fiscal 2012 to moderate significantly. According to the rating agency a fall in volumes in some sub-segments of the domestic auto industry could manifest into lower revenue growth for certain suppliers. Limited ability of original equipment manufacturers (OEMs) to fully absorb high raw material prices, caused partially by a weaker rupee, alongside an increase in other input costs is also cited as a significant headwind for the sector.

RATINGS UNDER THREAT ?

Fitch expects an easing of operating profitability along with a lengthening of credit cycle to necessitate the need for higher working capital. This is in addition to the long-term borrowings from previous capex plans or proposed projects, which would be likely to weaken the credit metrics of auto suppliers over H212. However, the limited exposure of Indian auto suppliers to foreign currency borrowings would help prevent any large alteration in their credit metrics in 2012 from rupee depreciation. A sharper and widespread fall in automotive volumes beyond 2012 could adversely impact OEM's operating cash flows and in turn lengthen their payable periods to auto suppliers. Auto suppliers' stressed liquidity through higher working capital borrowings could constrain their financial flexibility for completion of capex plans and may cause a revision in the outlook to negative.

Source: Fitch Ratings

BILL GROSS SIGNALS THE DEATH OF EQUITIES

THE CULT OF EQUITY IS DYING: BILL GROSS

Bill Gross has done it once again, the co-founder and co-chief investment officer of the world's bond fund  PIMCO has said that it is time to write the obituary for stock investing and stocks are no longer an asset to have and to hold. . Long-term Treasury bonds have been the higher returning and obviously “safer” investment than a diversified portfolio of equities. Gross, whose Pacific Investment Management Co has $1.82 trillion in assets, took particular issue with the noted economist Jeremy Siegel. According to him the long-term history of inflation adjusted returns from stocks shows a declining 6.6% real return to which he adds that higher risk is usually, but not always, rewarded with excess return.

ANY MERIT IN INVESTING ?

Gross goes on to add that a presumed 2% return for bonds and an historically low percentage nominal return for stocks – call it 4%, when combined in a diversified portfolio produce a nominal return of 3% and an expected inflation adjusted return near zero. The Siegel constant of 6.6% real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned. In his April investment letter, Gross struck a similar tone on total return expectations. Gross then said investors should get used to smaller investment returns because of slower global growth and as the financial services industry continues to deleverage, or reduce its reliance on derivatives and borrowed money to generate higher returns. This time around, Gross said at their currently low interest rates, investors should expect "mere survival" from their bond investments.

WORK HARD FOR YOUR RETURNS

Gross argued that with dwindling returns on stocks and bonds individuals will have to work longer to save for their retirements. "If financial assets no longer work for you at a rate far and above the rate of true wealth creation, then you must work longer for your money," Gross wrote.

IS BILL GROSS A CLOSET BULL ?

Marketwatch's columnist Jonathan Burton in his article signals the possibility that Bill Gross could be a closet stock Bull. Gross' August investment letter is also reminiscent of BusinessWeek's famous "Death of Equities" cover story, which appeared in 1979, just before the start of a big bull market.

SOVEREIGN WEALTH FUNDS TURN CAUTIOUS

SWFs TURN CAUTIOUS: WHAT NEXT

GIC (SINGAPORE)

Government of Singapore Investment Corp which manages assets of over $100 billion globally, in a sign of extreme caution has boosted its cash levels to those exceeding the 2008 global financial crisis as it scales down  its holdings of equities and bonds particulary  Europe. Cash allocation almost quadrupled to 11 percent of its portfolio in the year ended March from 3 percent a year earlier. Stock holding fell to 45 percent from 49 percent as it pared equities in developed markets, while bonds dropped to 17 percent from 22 percent.

CUTTING EXPOSURE TO EUROPE

GIC is reducing its investments as the MSCI World Index (MXWO) posted its biggest slump since the 2008 global financial crisis and market volatility reached the highest level in more than two years.
GIC’s holdings in Europe fell to 26 percent from 28 percent, with those in the U.K. unchanged at 9. Within Europe, GIC’s assets in Portugal, Ireland, Italy, Greece and Spain made up 1.4 percent of its portfolio, mainly held in real estate and stocks in Italy and Spain. Assets in the Americas remain unchanged at 42 percent, with 33 percent of the total portfolio in the U.S., it said. GIC also raised its allocation to Asia to 29 percent from 27 percent. Holdings in so-called alternative assets increased to 27 percent from 26 percent, it said, with a gain in private equity and infrastructure investments.

CIC (CHINA)

China Investment Corp., which posted a 4.3% loss on its global portfolio last year, has significantly reduced its holdings of public securities and trimmed its investment philosophy thereby pushing into longer-term investments as the $482 billion sovereign-wealth fund seeks to shield itself from market volatility.  CIC said in its 2011 annual report released last week that public equities made up 25% of its global portfolio at the end of last year, down from 48% at the end of 2010. Long-term assets—which include direct investments in nonpublic companies and private equity—and hedge funds together accounted for 43% of its portfolio. Though it disclosed few details of its moves, it said it made direct investments in oil and gas, mining and infrastructure to shift toward "lower-risk assets." Among other assets, CIC said Wednesday that 21% of its overseas holdings were in fixed-income securities, with 11% in cash.
Source: WSJ and Bloomberg

RBI VS INFLATION: NEITHER WILLING TO RELENT

RATES CUTS NOT LIKELY SOON

The Reserve Bank of India left its key policy rates unchanged today, although it cut the Statutory Liquidity Ratio by 100 bps to 23% (seen mostly as a symbolic gesture as most banks hold much more liquidity in government bonds voluntarily). The RBI however slashed growth estimates for the current fiscal much below the Government's estimates to 6.5% and raised the fiscal year end inflation forecast to 7%.

INFLATION: PRIORITY NUMBER 1

Reading today's statement in conjunction with the one in June, one gets the sense that the RBI has become even more resolved in its fight against inflation. The reasons that prompt the Reserve Bank to take this extreme steps include a deficit monsoon which is expected to push WPI further in coming months. The RBI is concerned about growth and external risks, but it also sees numerous inflation risks, including pass through from rupee depreciation, outlook for food inflation due to a poor monsoon, and continued demand stimulus coming from fiscal subsidies. Moreover, despite slowing growth, the central bank sees no discernible easing of demand for protein rich food products, nor does it see persisting supply side bottlenecks easing anytime soon. The risk for inflation to remain elevated, therefore, is considerable.

DONT BLAME THE RBI FOR THE SLOWDOWN

While cutting India's fiscal GDP growth target to 6.5% the Reserve Bank defended its hawkish monetary stance and categorically mentioned that factors other than policy steps have led to the growth slowdown (hinting at government inaction) and cutting rates may not necessarily spur growth.

THE CLOCK IS TICKING

TICKING TIME BOMB !

Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. The world debt clock shows the global figure for almost all government debts in dollar terms.
World governments owe the money to their own citizens and to other nations. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have.
Link: http://www.usdebtclock.org/world-debt-clock.html

FOOD PRICES HEADED HIGHER: CHANNEL CHECKS

FEED PRICES SKYROCKET: A LEADING INDICATOR

Average prices of poultry feed – consisting of oilseed cakes, rice bran, grounded maize and soya – have risen by 69% y-o-y in July up from 18% in June, because of the lack of rainfall and higher global prices. These price increases outpace those during the 2009 drought.
Feed is a key input in poultry farming, and this sharp price increase suggests that prices of eggs and chicken (protein food items) may rise sharply in the coming months. If farmers choose to substitute poultry feed with cereals then prices for cereals could rise as well.
Rising feed prices are an early indicator of the potential impact that the deficient monsoons could have on food prices. As delayed monsoons hurt production of vegetables, cereal and oilseeds, we expect WPI food (primary and manufactured) inflation, which is currently 9% y-o-y, to rise into double digits in the coming months. This will keep both WPI and CPI inflation elevated above the central bank's comfort zone

Poultry feed an input into poultry farming, is an early indicator of the potential impact a drought could have on food prices.

IPL TEAM OWNER IS BUST: LENDER ALLEGES

Deccan Chronicle Holdings the parent company of IPL team Deccan Chargers has liabilities running into thousands of crores of rupees that may lead to the erosion of the entire net worth of the company and make it commercially unviable and insolvent, Industrial Finance Corporation of India Ltd (IFCI) has said in the winding-up petition which it has filed in the high court against the Hyderabad-based company.

Contending that DCHL was unable to discharge debts of its creditors and had almost become insolvent, IFCI urged the high court to order winding up of the company under the relevant sections of the Companies Act 1956. The high court was also requested to appoint an official liquidator and restrain the company and its officials from disposing of, transferring or encumbering the company's assets pending the admission hearing and final disposal of the petition. The petition was filed by IFCI on Friday after DCHL defaulted on redemption of 250 unsecured redeemable non-convertible debentures (NCDs) on June 26 this year and failed to pay up its dues of Rs 27,80,47,945 despite "repeated requests and demands". The NCDs were part of a Rs 150 crore NCD issue made by way of private placement by DCHL with Infrastructure Development Finance Company (IDFC) last year at an interest rate of 11.25% per annum for a tenure of 364 days. In July last year, 250 of these NCDs were acquired by IFCI from IDFC.

IFCI said DCHL had massive secured and unsecured debts running into thousands of crores of rupees with various banks, financial institutions, non-banking finance institutions etc. and feared that many more winding up petitions may be filed by other creditors as the company had defaulted on several liabilities. It also cited the recent order of a London court ordering the company to pay Pounds 10,533,478 (around Rs 90 crore) to Tim Wright, the former chief executive of its Indian Premier League team Deccan Chargers, for breach of employment contract as one of the major liabilities facing the company. In its petition, IFCI also revealed that DCHL chairman T Venkattram Reddy had visited their offices in Delhi on June 30 of this year and given a stamped undertaking acknowledging the company's liability of Rs 25 crore plus interest on the NCDs with a promise to make the full payment to IFCI by July 4 this year. IFCI also said that following this meeting, DCHL had arranged for a payment of Rs 2,80,47,945 via RTGS (real time gross settlement) towards interest of 11.25% per annum on the NCDs and gave two cheques, dated July 4, for the principal amount of Rs 25 crore drawn on ICICI Bank at Chennai as well as for Rs 7,36,718 drawn on ICICI Bank, Secunderabad. The cheque of Rs 25 crore, however, was dishonoured by the bank on grounds of insufficient funds.

After this, IFCI filed an application before the Debt Recovery Tribunal in Delhi for recovery of Rs 25,17,28,944 against DCHL on July 16, this year. IFCI said that the action of DCHL in failing to redeem the NCDs on the due date was sufficient to establish that the company had no funds to pay off its dues in the first instance and the letter of DCHL requesting IFCI for a cure period (grace period) of 30 days to redeem the dues with interest had further established that the company was unable to pay off the dues and reconfirmed its inability to pay up the amount due to IFCI.

DOES THE DOW DESERVE TO BE ABOVE 13000

GRIM REMINDERS OF 2009
It seems the 2009 crisis has returned to haunt the US corporate sector even though the market seems to be happily rallying with the Dow breaking above the 13000 mark.

Based on the 291 companies in the Standard & Poor's 500 that have reported earnings so far — along with estimates for the rest — S&P Capital IQ expects overall profits to decline by 0.5% from the same period a year ago. That would be the first time that profits have shrunk since the third quarter of 2009, just after the Great Recession. Analysts are predicting that earnings will shrink 0.3 percent for the third quarter, too. Revenue for those 291 companies has increased just 2.3 percent, compared with a 10-year average of 7.1 percent, according to S&P Capital IQ. Worse, companies are getting more pessimistic about the rest of the year.

EARNINGS FORECAST CUT
Among the largecaps UPS, Cisco  and DuPont have already trimmed down 2012 earnings forecast and cited caution that there could be a case for further guidance cuts. In a survey by data provider FactSet, 47 out of 60 companies lowered the earnings guidance they gave investors for the third quarter. And investors often trade more on outlooks than on the last quarter's results. Shares of online game-maker Zynga plummeted nearly 40 percent on Thursday after it slashed its profit guidance for the year to between 4 cents and 9 cents per share, from 23 cents to 29 cents previously. UPS lost 5 percent of its value the day after cutting its full-year earnings forecast by 25 cents per share, to a range of $4.50 to $4.70. Its stock regained some of that loss later in the week. Starbucks shares plummeted 9.4 percent on Friday after it cut its outlook for the current quarter and said it is still struggling in Europe.

GROWING INFLUENCE OF EMERGING MARKETS IN OLYMPICS

Emerging Markets Now Win Half of All Olympic Medals

Emerging Markets Have Become Leaders in Many Sports

Split of Medals is Moving Towards Emerging Markets

Source: Sports Reference, Goldman Sachs

GUJARAT HIGH COURT'S SHOCKER FOR AUTO INDUSTRY

SETTING A NEW PRECEDENT

In an order which would impact lakhs of people owning cars, the Gujarat high court on Wednesday directed the state government to pass necessary laws to make it compulsory for all four-wheelers registered in Gujarat to convert to natural gas within one year. Further, the court gave two months to the state government to issue necessary orders to impose stringent restrictions to reduce pollution by fixing levels of emission to the minimum, at par with international norms. The order applies to both public and private vehicles running on petrol and diesel.
The order, passed by Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala, came in response to directions sought by Dhrangadhra Prakruti Mandal, through its vice-president Devjibhai Dhamecha, to the state and Centre as well as all gas and petrol companies operating in Gujarat.
The order said, "The state is directed to pass necessary orders compelling owners of all vehicles having registration in Gujarat to use natural gas and, if necessary, even at higher prices within the shortest possible period, not exceeding one year from today for the protection of lives of citizens."
The judges suggested gas prices be cheaper for public vehicles and higher for privately owned vehicles. Also, fares of public transport should be fixed at reasonable rates so that the end benefit goes to the public.
The Gujarat high court also directed the Central government to allocate natural gas for domestic and vehicular use to the city of Ahmedabad usage at the same rate as it is supplied to Delhi and Mumbai. "This is to enforce the right of equality," the judges said.
Source: Reports

IMPACT

Oil marketeers such as Indian Oil Corp, bharat Petroleum and HPCL would feel the heat as 11% sales of Petrol, Diesel comes from the state of Gujarat

Central Govt doesn't have enough gas for dedicated allocation for entire Gujarat
Auto companies may find it difficult to set up facility for gas engines in one year time

Supply of gas to auto sector falls under city gas distribution which is 4th in priority list

Fertiliser, LPG and Power are top priority for gas supply under Central Govt

Even imports of gas dedicated for Gujarat in one year time would not be possible

WHO WOULD BENEFIT

Petronet LNG, Gujarat Gas and Indraprastha Gas to benefit as gas offtake picks up

CNG cylinder manufacturers such as Everest Kanto to benefit as demand picks up

POWER 'FULL' UPDATE: JUNE 2012

THE POWER FACTOR

All-India generation was up by 8% yoy in June 2012, driven by strong growth across coal and nuclear generation, but partially offset by decline in gas- and hydro-based generation. While coal generation increased 17% and nuclear power reported a growth of 9%, gas and hydro power declined 21% and 5%, respectively. Industry PLFs declined significantly yoy to 51% due to fuel shortages. Coal-supply position deteriorated—32 out of 89 plants face sub-critical inventory levels (vs. 27 last year). While peak deficits declined mom, base deficits increased significantly leading to higher merchant rates. Capacity addition in June 2012 was 83% of the targeted 2,862MW with 2,361MW added. (All numbers pertain to June 2012 with a yoy comparison, unless specified)

GENERATION

Coal generation was up 16.8% on capacity addition while nuclear generation was up 8.8%. Gas generation was down 21% (due to declining output from the KG basin) and hydro was down 5.5% primarily on a higher base. Consequently, overall generation for the month was up 8.1%.

COMPANY WISE BREAK-UP 

NTPC’s total generation increased 9% driven by 8.9% growth in coal generation and 10.2% growth in its gas-based plants (mainly due to lower yoy base). Tata Power reported 58.9% growth in generation, fuelled by the commissioning of Mundra’s first 800-MW unit. Adani’s and JSW’s strong generation growth was driven by capacity additions. Companies with gas-based plants, such as GMR and GVK, continued to see declines on gas supply constraints.

PLFs (Plant Load Factor)

Overall PLFs declined significantly to 51% (55% last year). While PLFs at coal-based plants declined to  65.3% from 67.2% yoy, as capacity additions outpaced increase in coal production, gas-based PLFs declined to 45% from 61% due to declining output from the KG basin. Hydro PLFs declined to 39% vs. 43% yoy. However, nuclear PLFs showed improvement, growing to 78% from 72%. While peak deficit declined to 5.8% vs. 8.1% mom, base deficit increased to 8.6% vs. 7.5% mom leading to 22.6% increase in merchant rate on a monthly basis to Rs4.2/unit.

COAL PRODUCTION

Coal-supply position deteriorated with 32 out of 89 plants facing sub-critical inventory levels (vs. 27 plants in June 2011 and 29 in May 2012). International coal prices at US$85.5 are down 26% yoy, but on a landed costs basis, they are down ~8% due to rupee depreciation. Natural gas production continued its declining trend with May 2012 output down to 119mmscmd, an 11% fall yoy.

CAPACITY

In June, capacity addition was of 2,361MW vs. the monthly target of 2,861MW. YTD, the total addition was 5,463MW against the target of 3,807MW. In the 11th Plan (2007-2012), the industry achieved 86% of its targeted capacity, adding approximately 67.5GW (including approximately 17GW renewable) vs. the targeted 78GW. Currently, all-India installed capacity is about 205.3GW.

Source: CERC, reports

GOLD ETFs VERSUS JEWELLERY

WHY INVEST IN GOLD ?

Gold is considered as better investment option due to its steady rise in price as well as it is considered as a consistent class of asset which has headed north over the last few years. Gold is also considered to be the perfect hedge against the inflation. It also offers the much needed diversification of portfolio. In volatile equity markets, the gold is often considered as a safe haven. Increased global risk, US Dollar weakness, growing inflationary fears, the US debt downgrade and continuing sovereign debt risks in Europe have increased investor appetite for gold, triggering recent price strength.

WHICH IS BETTER: ETF OR FUND OF FUNDS