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Investeurs chronicles 8

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  • I really enjoy reading through Investeurs but especially liked the article on Aluminium variations. The insight provided on Aluminium variations, the underlying cause and future prospects of the metal were really enlightening. The article put forth the idea with a incredible writing style.
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    Investeurs chronicles  8 Investeurs chronicles 8 Presentation Transcript

    • December 2010, Volume: 8 Sensex 19508.89 Nifty 5857.35 Dollar 45.05 Gold 20435 Silver 43915 Crude Oil ($) 90.94 Investeurs Chronicles INSIDE • Current Chronicles • Cover Story – Development of indigenous Defence Industry in India • Open Forum – Rupee Appreciation • Emerging Markets • Outlook – Aluminium • Financial Q • In Focus – Chindia Investeurs Consulting P. Limited S-16, U.G.F, Green Park Ext. New Delhi-110016, www.investeurs.com
    • Current ChroniclesRBI announced a temporary reduction in reserve Telecom value-added services provider One97requirement for banks to help them tide over the liquidity Communications Ltd has further delayed its initial publicshortage that lenders as well as corporates are grappling offering to raise as much as 1.2 billion rupees, said twowith. The move will free Rs 40,000 crore, but may turn out sources close to the development. Earlier, the companyto be inadequate as money flows out of banks mid- had already delayed its IPO to Dec. 13 from Dec. 1 due toDecember when corporates and other entities pay advance the same reason.tax. More… More… Tata Steel could team up with an Indian metals companyRepo trade in corporate bonds has taken off with ICICI or a miner to make a counterbid for Riversdale Mining, inSecurities Primary Dealership (I-Sec PD) striking the first response to Rios $3.5 billion (about . 15,750 crore) bid fordeal. IDFC entered into a repo agreement to purchase coal-rich Australian miner Riversdale. Tata Steel is gearingNational Housing Bank’s Triple A-rated three-year bonds up for a battle to control the Australian-listed miner thatas the underlying paper. The underlying value is Rs 25 owns large coal mines in Mozambique and has become acrore, which is exclusive of the 10% haircut, mandated by target for global mining majors such as Anglo-Americanthe Reserve Bank of India in repo trades in corporate and Rio Tinto.bonds. More… More…Indias economy could grow by nine percent this fiscal Novelis, the Canadian unit of Hindalco Industries , will onyear, the highest in three years, and average inflation will 10th December close a deal that will refinance the debtbe nearly double the central bank end-year targets, taken by Hindalco but at a higher rate, said people withaccording to a review of the economy by the finance direct knowledge of the financing exercise. The Adityaministry. The economy grew 7.4 percent last fiscal year. Birla group has mandated five banks for the $4 billionThe fiscal deficit will not be more than 5.5 percent of its loan-cum-bond financing that will partly refinance thegross domestic product in the current fiscal year to end- loans that were taken when Hindalco acquired Novelis forMarch 2011, according to the report. $6 billion in 2007. The rate of interest for the loan cum- More… bond issue would be about 7%. More…….
    • C Development of Indigenous Defence Industry in Indiao ‘The eyes of global defence market are turning to India to see whether it will fulfill its potential as a future ‘home market’.v The Indian Armed Forces with regards to ‘State of the Art’, ‘Matured’ and ‘Obsolescent’ equipmente is only 15, 35 and 50 percent as against required equipment profile of 30, 40 and 30 percent respectively. Currently the bulk of Indian military hardware is sourced from overseas and ar handful of state firms, but by 2020 the Ministry of Defence hopes to acquire 70% of defence equipment from indigenous sources. The drive comes as India is increasing its defence budget toS modernize its armed forces. Defence spending totaled $19bn (£10.6bn) in the last financial year and is expected to exceed $30bn by 2012. To achieve autonomy in defence supply throught development of home market defence industry, Government will be required to make not only serious efforts towards upgrading its defence resources either by developing or procuring defenceo equipment and systems but will also be required to realize that self reliance would remain a pipe dream if it continued to bank on public sector alone. Even in the new defence procurementr procedure, there is no mention of role of the private sector and no worthwhile initiatives have been proposed to integrate private sector’s potential in India’s quest for self-reliance.y Past Initiatives taken by the government to encourage private participation in defence sector: Manufacture of components, assemblies and sub-assemblies was thrown open to the private sector in 1991. With a view to promote defence-industry partnership, the Ministry of Defence (MoD) constituted six Joint Task Forces in collaboration with Confederation of Indian Industry in 1998. Consequent to their recommendations, the Government opened defence production to the private sector in January 2002. It allowed 100 percent private equity with 26 percent Foreign Direct Investment (FDI). It was a major policy change. Subsequently, the Department of Industrial Policy and Promotion issued detailed guidelines for the issuance of licence for the production of arms and ammunition. The Kelkar Committee, constituted in 2004, made many radical recommendations. The Government has accepted a majority of them but their implementation has lacked earnestness and focus. The Department of Industrial Policy & Promotion (DIPP), in consultation with Ministry of Defence, has so far issued 37 letters of intent for the manufacture of various types of defence hardware which include armored and combat vehicles, radars, electronic warfare equipment,
    • Cover Story Development of Indigenous Defence Industry in India warships, submarines, avionics, military aircraft, safety and ballistic products, armaments and ammunition. Despite the above measures, there has been no discernible change in the ground situation. Only a handful of India’s top companies are involved in small value defence contracts. The private sector has to remain content with the supply of some low-tech items to the public sector. Its supplies to DPSU and Ordnance Factories grossed over Rs. 1200 crores and Rs. 1900 crores respectively last year. Whereas these figures signify the contribution made by the private sector, they also highlight the fact that the private sector continues to be merely an outsourcing base for the public sector. Foreign companies still account for the majority of procurement from the private sector in India, with approximately 70 percent of Indian defence procurement coming from overseas sources. Of the 30 percent of orders placed in India, only an estimated 9 percent is attributed directly to the private sector. Reasons for Continued Non-Participation of the Private Sector & Way Forward A number of defence-industry seminars, conferences and exhibitions have been held in the recent years. Given decades of insulation and prejudices, this was no small achievement. But old mindsets, complexity of procurement procedures and clout wielded by the public sector have been acting as major deterrents to any meaningful participation of the private sector. New aspirants, in particular, find the whole regime to be highly forbidding. There are various policies, procedural and functional issues that need to be addressed. The present process of interaction between the Government, public sector and private enterprises should be continued, albeit with renewed vigor and purpose. All joint committees should be represented at the level of decision makers, so that follow up action can be taken in a time bound manner. Structural Reforms A representative of the designated industry association should be a permanent invitee to the Defence Acquisition Council, depending on the security sensitivity of agenda points. His inputs as regards the technical prowess of the private sector will prove invaluable while deciding whether to import technology or not. Similarly, selected agenda points of Defence Procurement Board, Defence Production Board and Defence Development Board should be circulated to the industry association for advice. These steps will go a long way in integrating the private sector. Early Interaction with Industry on Acquisition Proposals The Acquisition Wing should indicate broad parameters of equipment under procurement to the industry association six months prior to the issuance of RFP. The association could circulate this information amongst the concerned companies for their advance knowledge. This will give adequate time to the interested companies to carry out technology scan and scout for foreign collaborations, if required. Support to Indigenous Industry Most nations support indigenous producers by giving them purchase and price preference. Foreign producers should be given incentives for collaborations with Indian companies. It could even be made mandatory, as has been done by Great Britain under its Industrial Participation policy.
    • Cover Story Development of Indigenous Defence Industry in India Policy on grant of waivers for deviations from parameters must make a distinction between an Indian and a foreign producer. Easier grant of waivers, albeit within acceptable limits, to Indian companies will encourage them to commit resources more willingly. Even commercial terms should be made more favorable to the local vendors as the lower life-cycle cost of indigenous equipment must also be factored in. Presently, the payment terms are unfavorable to the Indian producers. Foreign vendors are released full payment of their dues on submission of proof of dispatch (against performance and warranty bonds – each equivalent to 5 percent of contract value). However, Indian companies get payment only after the issuance of inspection note by the designated inspectors. This may take a few months, thereby increasing the cost of the capital involved. This incongruity needs to be addressed. Facilitation Service There is an urgent need to have a mechanism in place to facilitate the participation of Indian private sector in defence industry. Such a mechanism can serve twin objectives. First, it could assist in the assessment of a company’s current technical/manufacturing prowess and its potential for the development of defence products. A directory of credible defence manufacturers should be compiled with details of all assessed companies. This directory should be made available to all the defence procurement agencies to assist them to identify companies for issuance of tenders. The directory could also help foreign producers to locate potential Indian partners for collaboration. Secondly, advisory service could be extended to companies as regards the availability of opportunities for the supply of their current products to the defence. The service could also suggest defence products which a company can manufacture with marginal addition to its facilities. Related areas for development/diversification could also be indicated. Thus, this service can acquaint a company with the prevailing business opportunities and guide it as well. Public-Private Sector Partnership The public sector possesses excellent infrastructure, manufacturing facilities and a highly experienced task force. It will be a waste of national resources if these assets are duplicated by the private sector. The Government has to realize that both public and private sectors are national assets and harnessing of their potential is essential if India wants to achieve self reliance in defence production. The private sector, on the other hand, can bring in latest technology, managerial practices, marketing skills and financial management. Therefore, a well-blended fusion of both will result in synergizing of their strengths through economies of scale and prove mutually beneficial. Conclusion During the last three years, a serious and concerted effort has been made by the Government to reform and streamline the entire acquisition process. The Government has come to appreciate the potential of the private sector and wants it to complement the efforts of the public sector.
    • Cover StoryA number of praiseworthy initiatives have been taken andpolicies reviewed. Yet, the results on ground have very little toshow. There has been no appreciable inflow of anticipatedforeign funds. And finally, India plans to spend USD 100 billion on capitalEven today all major defence deals are signed with foreignproducers. The public sector continues to get bulk orders expenditure during the 7th Plan Period (2007-12). Imports accountunder transfer of imported technology. The private sector for close to 70 percent of capital expenditure and offsets arecontinues to be a peripheral participant with the productionof some low-tech items and indigenization of some required equal to 30 percent of import contracts. Thus, Indiacomponents. expects offset trade worth USD 21 billion during the next five years.The present process of interaction and integration should becontinued, albeit with renewed vigor and purpose. All joint Currently, Indian defence exports amount to paltry USD 50 millioncommittees should be represented at the level of decision annually, i.e. USD 250 million in five years. From USD 250 millionmakers so that the follow up action can be implemented in atime bound manner. There is no point in having committees to USD 21 billion, it will be a quantum jump of enormousand joint task forces if their reports are going to gather dust proportions. The public sector cannot handle it by itself. The privatewith no follow up action. Technological prowess of the private sector has to be closely integrated and its potential fully harnessedsector should be given due recognition and considered anational asset. The objective of achieving self-reliance will for beneficial absorption of the projected offset business.remain elusive unless the private sector is duly integrated andits potential fully harnessed to build a viable indigenousdefence industrial base. The Government has to create anenvironment where in the private sector feels assured of justbusiness opportunities, level playing ground and fair play.
    • Rupee Appreciation- Two faces of Rupee Open ForumInflows from FIIs has crossed the magical Rs. 1 lakh crore mark inOctober, 2010 – an achievement by no means less than a gold medal forthe Indian stock market.The strong domestic demand and robust investment climate in thecountry has resulted in a surge in capital inflows, which have helped However, let’s not forget the golden rule which states that – whatever goesfinance the higher level of current account deficit. up has to come down. Moreover, the higher the markets move northward, steeper would be the fall on the downside.Further, as emerging markets like, South Korea, Thailand and Brazilimpose curbs on overseas funds from developed nations and Korean A lot of Asian currency’s rally is dependent on global liquidity and riskconflict and Ireland’s debt issue were driving overseas fund into the appetite, any weakening of global sentiment impacts foreign institutionalIndian market. investors who own around 14-15 percent of Indian markets. Global risk appetite is more destabilizing for the rupee because, unlike other AsianThe rupee appreciated 4 percent this year as capital inflows poured a countries, India needs capital flows to fund the current–account deficit.record $39 billion into Indian shares compared with last year’s $17.45billion. Coal India Ltd. IPO pushed a major part of FII inflows in the India. Indian rupee was the worst performing currency among the 10 most-Just about every part of the issue was oversubscribed, there was record traded currencies in Asia excluding Japan in the month of November.participation from FII, who put in bids for nearly Rs 1.2 lakh crore worth China’s Yuan was little changed in the period at 6.667 a dollar, whileof shares.
    • Open Forum European debt crisis will not be the only reason for the rupee to go down. A surge in crude oil prices to the highest level in two years will widens current account deficit and will also threaten the rupee’s rally. It touched $90 a barrel on Dec 7, 2010, a level not seen since Oct 2008. Crude oil imports by Asia’s second fastest growing major economy surged 41 percent in the first 10 months of this year to $82.1 billion according to data compiled by Bloomberg. Whenever oil prices go up, the risk of the current account deficit widening increases quite significantly. Rupee is expected to continue underperform as the FII inflow shortfall is pretty much the main point and oil prices are definitely at risk. Historical data supports this view. The rupee dropped to 8 percent in theTaiwan’s currency slipped 0.2 percent to NT$30.85. Reason third quarter of 2008, when crude oil prices rose to a record $147 a barrel onbehind is, global funds pulled money from Indian shares in the July 11 of that year and in this quarter Indian currency is little changed.last week of November since May because of the worsening debt FII have reduced their exposure to India. India’s share of FII inflows to Asiacrisis in the Europe. (excluding Japan) has declined from around 50 percent in the year till date to 35When the external environment is bad, countries like India with percent in the week till date. South Korea, Taiwan and Thailand have gains atlow liquidity would get sold off first and threats the efforts to India’s expense. The share of FII inflows for the week-till date for these countriesoffset Asia’s worst current-account deficit by attracting has increased to 34 percent, 20 percent and 11 percent from 29 percent, 12investment. A rise in global risk aversion could lead to strong percent and 3 percent respectively. Given the global liquidity environment,outflows from India. Reversal of flows remains one of the keyrisks to Indian markets as the possibility of a double-diprecession in developed markets cannot be ruled out.The Indian currency slid 3.3% till November end, the most sinceMay.
    • Copper theft costs SA R5bn a year Emerging MarketsCopper theft is costing the economy an Brazil Securities Commission Fines Credit The paper said the volume of the suspiciousestimated R5bn per year, the SA Chamber of Suisse For Insider Trading transactions was more than double the 57Commerce and Industry (Sacci) said as it Brazils Securities Commisssion CVM said it is trillion rouble figure reported for the samereleased its first copper theft barometer in an fining Credit Suisse Group (CS, CSGN.VX) 26.4 period of last year and is over three timesattempt to reduce the costs of the crime on million Brazilian reais ($15.35 million) for Russias nominal gross domesticthe economy. insider trading and influencing local markets. product. Russias central bank expects aThe R5bn includes only the replacement value Fines were imposed on Credit Suisse capital outflow of $22 billon in 2010. Inand does not take into account security or International and on Credit Carteira Propria, a September, the central bank warned that thelabour costs, said Drodskie. It also has an local Credit Suisse investment fund, for their number of suspicious transactions toadverse impact on the economy through loss involvement in sale in the control of energy accounts outside the country was on the rise.of productivity, negative investor perceptions transmission company Terna Participacoes SA to Investment-grade status still some way offand poor service delivery, among others. energy generator Companhia Energetica de for Indonesia Minas Gerais SA (CMIG4.BR), or Cemi. The banks Indonesia has made significant stridesSAs current account deficit widens involvement in the transaction caused an towards building the political institutionsSouth Africas current account deficit widened unusual increase in Ternas trading volumes necessary for the country to achieveto 3% of gross domestic product (GDP) in the and share prices, CVM said in a report emailed investment-grade status.third quarter of the year from 2.5% the to Dow Jones Newswires. "Generally, investment-grade sovereigns are inReserve Bank said. In its December quarterlybulletin, the Reserve Bank said South Africas Russia reports $3.8 trillion in suspect charge of their own fate, meaning they aretrade surplus with the rest of the world had transfers: report able to absorb exogenous shocks by drawingincreased significantly in the third quarter of Russian financial institutions reported 120 on entrenched economic, political, and2010, as terms of trade improved and trillion roubles ($3.8 trillion) of suspicious institutional strengths," S&P credit analystvolumes of exports and imports increased. transactions to the anti-money laundering Agost Benard said in a statement.But this was neutralised by a widening in the watchdog in the first nine months of 2010. Indonesia’s foreign currency debt is rated BBdeficit on the income, services and current Russian businessmen sent hundreds of billions (with a positive outlook) by S&P, which is twotransfer account, partly because of lower of dollars abroad in the years following the 1991 notches below investment grade. At thereceipts from foreign tourists after the end of fall of the Soviet Union, though such a high beginning of this month, rival agency Moody’sthe 2010 Fifa World Cup hosted by South volume of suspicious transactions could fuel assigned a positive outlook to Indonesia’sAfrica in June to July. fears of increased capital flight and money foreign currency debt, which it rates Ba2 laundering. (equal to the S&P rating).
    • Aluminum: Going up or down?Aluminum has a strategic importance in overall demand increases on the back of sound Outlookdevelopment of the country due to its wide demand from sectors like aviation,range of uses in infrastructure, construction transportation and electronics. As a result, Call Rates as on 10th December 2010 → 4.45% -and transportation sector. Global capacity to the metal, used in cars and construction 6.65% Aluminum (1 kgs) 104.95produce the metal is expected to increase 47 materials, is expected to consolidate at Commodities Copper (1 Kg) 400.30percent to 66 million tones. On the other hand, $2,500 a metric ton next year. Although LMEconsumption is expected to grow to 74 million stockpiles are at 4.46 million tons, five timestones from current level of 38 million tones, the average since 1980,they do not signify Zinc (1 kg) 104.10 Steel (L) (1000kg) 26200primarily, on the back of higher growth in supply glut as so much is held by investorsChina in the coming decade. Demand in China, or tied up in financial arrangements. As on 10th December 2010the world’s largest consumer of the metal used Increase in long term price is furtherfor cars and houses, is forecasted at 44 million suggested by forward spreads on aluminum,tons in 2020. Forex which have widened implying that buying Forward Rates against INR as on December 10,Towards end of the previous month, Aluminum interest has picked up. Indeed order books 2010prices rose to $2,500 per mton (113.4 cent/lb) in Europe are reportedly strong & there are Spot Rate 1 mth 3 mth 6 mth US 44.97 45.29 45.78 46.47(highest level since September ‘08) but fell 13% reports that Brazil & Mexico have to import Euro 59.62 60.02 60.67 61.56to a two-month intraday low of $2,184 per aluminum from North America as demand in Sterling 71.26 71.74 72.51 73.57 Yen 53.8 54.19 54.8 55.66mton (99 cent/lb). Such sharp decline in prices the region is booming. Swiss 45.83 46.17 46.69 47.43occurred due to a stronger dollar in In the recent months factors like pessimistic Franc Source: Hindu BusinessLineinternational market coupled with renewed job data from the US, debt crisis in Europe,financial crisis in Europe. monetary tightening in China along with the Libor Rates as on December 10, 2010Aluminum prices started to rebound towards recent Korean crisis had dragged Aluminum Libor % 1 mth 3 mth 6 mth 12 mthstart of December to $2,387.50 /ton driven by in the international bourses. However, long US 0.26 0.30 0.46 0.78 Euro 0.76 0.96 1.20 1.49ECB’s decision to back EU stability. However, term scenario appears brighter for the metal Sterling 0.58 0.75 1.04 1.50this proved to be short lived, with aluminum due to robust demand from China. The only Yen 0.13 0.18 0.35 0.57prices falling as an impact of worse than deterrent, here, appears to be a strong dollar Swiss Franc 0.14 0.17 0.24 0.53 Forward Cover % as on December 10, 2010expected US employment report showing that might hurt the future prospects of the 1 mth 3 mth 6 mth39,000 jobs were created in November against metal. US 8.39% 7.21% 6.72%expectations for 143,000. Euro 7.96% 7.07% 6.56%Aluminum prices are expected to rebound in Sterling 7.85% 7.00% 6.51%the next year as supplies tighten and investor Yen 8.36% 7.38% 6.93% Swiss Franc 8.76% 7.52% 7.03% Source: Homefinance.nl
    • Financial Q In Focus1. Which Indian Entrepreneur was recently awarded Chindia the Max Schmidheiny Foundation Freedom Award?2. Who created SDR, Special Drawing Rights, in 1967 which deals with the reserve of international assets whose value is based on the widely used currencies?3. What is known as the purchase of insurance against losses because of currency fluctuations?4. Which countrys foreign market is known as Chinese Premier Wen Jiabaos three day visit to India from 15-17 December Rembrandt Market? 2010 is projected to be a milestone in Sino-India relations, which similar to other high profile visits in last one month, is primarily aimed at expanding5. Which leadership guru coined the term bilateral trade .However, China maintains that it also hopes to strengthen the “Transformational Leadership”? high level contacts to enhance strategic mutual trust and build consensus.6. With which form of economy is the term “Laissez- Heading the biggest ever delegation of 400 businessmen, Wen is expected to faire” associated? sign deals worth 20bn US$ with India. The booming bilateral trade which is on7. The Hollerith Corporation changed its name to course to touch $60 billion has already crossed $49.84 billion this October something iconic in the future. What is it? with Indian exports amounting to $17 billion, while China continue to dominate with 32.87 billion worth of exports.8. Which Financial Giant has Rocks of Gibraltar as its logo?9. "Bollywood" name has been granted as a trademark Answer of Quiz: 7 to which US based Media and Entertainment Company by Indian Trademark Registry? (1) Italy (2) Payroll tax (3) Sweden (4) G8 (5) 1954. (6) Dow Jones & Company (7) Amsterdam stock exchange (8) Numismatics (9) No period (10) Cash cow