Saturday, April 30, 2011

Tele-density and growth

Telecom sector plays a multiplier role in the socio-economic development of a nation as it provides the primary support service to communicate with each other. It has become a fundamental requirement for the rapid development and modernisation of different sectors with the tremendous growth in the requirement of information literacy.

This article brings out how telecommunication accessibility plays an important role in the growth of a region. For our assessment, we have taken tele-density as our basic parameter. Tele-density refers to the number of telephone connections per 100 persons. It is a clear indicator of accessibility and the penetration of the telephonic services among the people.

High tele-density harnesses high growth in a region

High tele-density reflects the higher level of communication and chances of collaboration among peers, the primary need of development. Delhi , which has very high per-capita income and growth rate of 11.86%, relies highly on the services and usage of telecommunication for its development. With more two connections per person in Delhi, it gives opportunity for the people to share critical information more easily and in shorter period of time.

States such as Gujarat and Kerala, which enjoy high growth rates of 10.8% and 9.55% respectively, are attractive destinations for investment due to high tele-density as an enabler. Due to high literacy in Gujarat (79.31%) and Kerala (93.91%), they are a good market for 3G and WiMax services that will support further development of industry in these states. States such as Haryana, Andhra Pradesh and Himachal Pradesh, which are more agriculture-driven, are likely to avail the high technology services of weather and crop information with high tele-density.

Lower-growing states need tofocus high on tele-density

The lower-growing regions lack quality telecommunication infrastructure for coordination and information-sharing. Uttar Pradesh and Madhya Pradesh, which are the most dense and highly populous states, are not able to leverage their huge population for economic growth with GDP growth rate of 5.8% and 4.7%, respectively, due to lower telephonic reach as one of the primary reasons.

Information-sharing and delivery to the masses become a huge challenge for organisations in these states with tele-density of nearly 50%. One of the country's mineral-rich states, Jharkhand is growing at just 5.92% and Assam at 5.31%. Jharkhand has tele-density of just 6, lowest in the country. Lack of telephone service limits communication in Jharkhand, hurting socio-economic development in the mineral-rich state. Both states need urgent attention from an investment perspective to develop affordable telecommunication facilities as they have low per-capita incomes of $395 and $419 respectively.

States needs to leverage their high tele-density for future growth

Punjab is highly dependent on agriculture and has a very high tele-density of 97.9%. So, nearly every individual in the state has one telephone connection and higher per-capita income of $864. Both the factors can be leveraged for availing the upcoming technological services on real-time information on weather, crops, seeds and fertilisers. The high tele-density can also be used as a platform to market crops, easily monitoring market trends.

Standard growth rate should be used to develop more telecom facilities

There are states that are performing high on the growth rate chart but need to develop more telecom facilities to maintain the desired growth rate. Chhattisgarh has a very high growth rate of 9.78% but tele-density of less than 6. It will be difficult for Chhattisgarh to sustain this growth rate without investing in telecom facilities to fulfil the supporting communication requirement of businesses.

West Bengal and Rajasthan have growth rate of about 7.5% but lower tele-density of 47.84 and 62.3. So, sustainable development as the supporting factor of strong telecom penetration is missing in the states. The need is to develop adequate telecom facilities so that more people can avail the telephone at affordable prices as they have lower per-capita income of $599 and $497 respectively. Bihar has the lowest per-capita income of $294 and is heavily dependent on government incentives and investment in telecom to ensure the recent economic growth continues.

The Future

The states needs to understand the value of high tele-density for the sustainable economic growth. The need of the hour is to offer incentives and lucrative investment in telecom so that telephony becomes accessible to all.

(Source: Institute For Competitiveness )


China Declares Victory Over Rapid Population Rise as Focus Shifts to Aging

China declared victory over rapid population growth as the release of its decennial census signaled the focus will turn to managing the impact of a faster- than-expected rise in the number of older people.
China had 1.34 billion people as of Nov. 1, the Beijing- based National Bureau of Statistics said yesterday. While still the most populous country, the higher birth rate of India’s 1.2 billion people puts it on course to take the title when the South Asian nation holds its next census in 2021.
Success in capping the population growth through the three- decade-old one-child policy presents China’s leaders with another problem as the swelling ranks of retirees create pressure to boost social welfare programs and pose a risk to the economic growth needed to fund them. The over-60s make up 13.3 percent of the population, 1 percentage point more than forecast and half as much again as in India, United Nations data show.
“The working age population is due to start falling within the next three or four years,” said Jim Walker, managing director at Hong Kong-based Asianomics Ltd. and former chief economist at CLSA Asia-Pacific Markets. “These 9, 10 percent growth rates people have become accustomed to are not sustainable for very much longer.”
Investors should put their money in countries where the prospects for return on equity are highest, such as India, Indonesia, Thailand, Malaysia and the Philippines, he said.

Trends Continue

Economic growth will slow “as demographic trends continue, highlighting the need to rebalance the economy over the next decade to prepare for such a transition,” RBC Capital Markets analysts, including Hong Kong-based Brian Jackson, wrote in a report published today. Growth would likely slow to 8 percent-10 percent in the coming 5-10 years, from the average 11.2 percent over the past five years, they said, citing government officials.
India will overtake China as the world’s fastest-growing economy by 2013 as it adds six times more workers to its labor pool, Morgan Stanley said in a report last year. People 14 years old and under make up 16.6 percent of China’s population, a decline of 6.3 percentage points from the 2000 census. Almost one in three Indians are in that group, Bloomberg data show.
China risks having to support retirees at per capita wealth levels that are only a fraction of aging developed countries and needs a better pension system to avoid what Goldman Sachs Group Inc. said is the danger of growing old “before getting rich.”

Fiscal Pressure

“The aging population is set to add fiscal pressure on the government in the medium and long term, which makes it imperative to put in place a well-functioning pension and health care system as soon as possible,” said Chang Jian, a Hong Kong- based economist with Barclays Capital who previously worked at the World Bank and Hong Kong Monetary Authority.
With more than $3 trillion in foreign exchange reserves, the government “has deep pockets now” and should be able to manage the aging of the country as long as economic growth rates remain high, Chang said.
China’s slowing population growth is a product of its family planning system and the policy of limiting urban residents to one child per woman, Ma Jiantang, head of the National Statistics Bureau, told reporters in Beijing yesterday. Annual population growth was 0.57 percent between 2000 and 2010, half a percentage point lower than the 1.07 percent annual growth between 1990 and 2000, according to the census figures.
“Our national basic policy of family planning has been well implemented and the overly rapid population growth momentum is effectively under control,” Ma said. Still, the proportion of people over 60 years old was 2.9 percentage points higher than in 2000, and that trend is “gradually accelerating,” according to the statistics bureau.

UBS, Blackrock

The trillions of dollars China’s hundreds of millions of workers will need in retirement savings may be a boon for global lenders and asset managers.
UBS AG (UBSN), Blackrock Inc. (BLK) and State Street Corp. (STT) help China’s National Social Security Fund invest assets overseas, according to the International Monetary Fund. China’s 856.8 billion yuan ($131.8 billion) national pension fund may increase its global investments and has 18 billion yuan invested with private-equity funds, Wang Zhongmin, vice chairman of the National Council for Social Security, said March 30.
As China’s population growth slows, it is also becoming more urban. City dwellers swelled to 665.6 million last year, more than twice the population of the U.S. China is close to having more residents in cities and towns than in villages for the first time in its history. The urban population makes up 49.7 percent of the total, 13.5 percentage points higher than a decade ago, the NBS said.

Contradictions, Challenges

The one-child policy, which has resulted in millions of aborted female fetuses, has led to men making up 51.3 percent of the population, with 34 million more men than women. Most countries have more women than men, including the U.S., where 50.3 percent of the population was female in 2010, according to U.S. census data.
The census figures show that “we still face some contradictions and challenges in population, economic and social development,” including an aging population and an “unbalanced gender ratio,” Ma said.
China will eventually move to a two-child policy, the China Business News reported yesterday, citing an unidentified person close to policy makers. Farmers and national minorities can often have more than one child, and rich people can pay fines for having a second or third child.
Investors have overlooked the implications of changes in China’s population profile “because of the extreme focus on growth,” said Kirby Daley, a Hong Kong-based senior strategist with Newedge Group’s prime brokerage business. “The demographic issues cannot be avoided at this point. They are not reversible.”
(Source: Bloomberg)

Silver Fever Is About to Break, and Break Badly

I was just starting to work on a column about silver mania Tuesday morning when a big, beautifully produced ad insert on silver, of all things, arrived with my Financial Times.
Proclaiming that "silver is the single greatest profit opportunity of our time," the insert featured a huge, nearly three-dimensional replica of a one-ounce U.S. silver eagle, with Liberty herself reaching out her hand and In God We Trust right there for all to see.
The coin replica, some 3 ½ inches in diameter, shone like a harvest moon, glittering with the possibility of instant riches.
And — you just can't make this stuff up — it came just a day after silver prices hit their highest level in three decades.
On Monday, silver closed near $50 an ounce, just below where it stood when the Hunt brothers tried to corner the market back in 1980 (although it's way below that record when prices are adjusted for inflation). On Thursday, it briefly touched a record high at $49.52 an ounce before falling back. Gold extends record run, silver gains 3.4%.
Of course it was a coincidence — the ad, by a Minneapolis coin dealer, was three months in the making, I was told — but it perfectly captured the moment when silver moved into the full-fledged mania stage.
It's happened with lightning speed. Last summer, before the most recent market rally began after Federal Reserve chairman Ben Bernanke announced a new round of quantitative easing (QE2), silver was still gold's poor cousin, trading below $20 an ounce .
Since then, it has rocketed more than 150%, and has soared 50% in 2011 alone. Gold, meanwhile, has plodded along with the stodgy old Standard & Poor's 500 index this year, though it's up nicely from last year's lows, too.
In recent weeks, silver fever has reached, well, fever pitch. Silver prices have shot up nearly 20% in April alone, as retail investors piled into the markets and the pros moved en masse into the futures and options pits.
Trading volume of silver futures at CME Group (NASDAQ: CME - News) hit an amazing 319,205 contracts Monday — more than 50% higher than the previous record last November — and this month the contract's average daily volume has tripled from last year, the Wall Street Journal reported.
And both individual and professional investors have gone ga-ga for silver exchange-traded funds. On Monday, iShares Silver Trust (SLV - News) saw three times the volume of the SPDR S&P 500 (SPY - News) ETF, one of the market's biggest, and SLV's trading volume was five times its daily average in the first quarter.
And just to show how zany things have gotten, day traders have been piling in big time to the ProShares UltraShort Silver ETF (ZSL - News), which makes double leveraged bets against silver prices.
How dumb is that? Well, on Wednesday afternoon, silver prices soared 7% after Federal Reserve chairman Ben Bernanke told his first live press conference that he doesn't expect to raise interest rates soon, and that he'd like to see a little more inflation than the official figures are measuring now.
The ultrashort silver ETF plummeted 12% on the day.
One seasoned trader told the Journal that day traders "are going crazy." "It's typical of the bubbly speculation that's been going on in silver," he added.
Next: Imminent correction?
That's why one long-time commodity bull, Eric Roseman, thinks a big correction in silver — and other commodities — is imminent.
"We're long overdue for one," he told me. "Something is going to derail this."
"The summer is usually a very bad time to be invested in commodities and equities," explained Roseman, who is based in Montreal and edits the Commodity Trend Alert newsletter.
"They're all going to correct very sharply this summer," he said, referring also to industrial metals such as copper, which he said faces an inventory glut because of stockpiling by China, its biggest buyer.
He thinks silver especially is in a classic mania. I agree.
Last fall, I wrote that gold was not in a bubble yet. Right now, it's somewhat behind silver, but has probably entered the mania phase of the bubble chart too.
Remember, both metals have rallied for more than a decade: Gold hit lows of around $250 an ounce in 1999 and silver around $4 an ounce in 2001. So, gold is up sixfold from its lows, while silver has risen more than 12 times. And the current gold/silver price ratio of 30 to one is "at an extreme," Roseman said.
One more troubling sign: While prices of the metal have soared, "the larger silver-mining stocks are starting to go down in the last couple of weeks, which is very bad. It shows exhaustion in the market," he said.
Roseman, incidentally, told me he started shorting some silver-mining stocks a couple of weeks ago.
But as a self-described "hard money guy," he thinks silver will be a good buy again, after falling to as low as $30 an ounce in coming months. His ultimate target: around $125 an ounce
The long-term case for precious metals and most commodities is intact, he argues. With the Fed still not ready to raise rates soon, that will keep the so-called risk-on trade going. He also sees more inflation much sooner than Ben Bernanke does. And, of course, the U.S. dollar has continued to sink.
On the other hand, it's hard to see the same real-world factors driving silver's rise as we've seen with, say, oil and grains. Industrial demand for the metal has been steady, as has supply. One table-pounding silver bull I heard on CNBC the other day was touting silver's use in solar energy panels. Oh, please.
Make no mistake: this is speculation pure and simple, and wild speculation at that. Some people may say they have "reasons" for buying now — inflation, the Fed, the dollar's decline — but you can hedge against all of those without buying silver.
No, the only real reason anyone's buying silver now is because they think the price is going up soon, and they don't want to miss the boat. That's the very definition of speculation, and it always ends very, very badly.
So, silver may keep rising for a few days or weeks but then it will come crashing down quicker than you can unwind a call option on SLV. I agree with Roseman that we will find better buying opportunities down the road, but for now you'd best get your helmet and flak jacket ready. Because in a mania like this, all that glitters is not silver.
(By Howard Gold of MarketWatch)

4 Reasons To Cheer When China Overtakes America


As many athletes know, it can be harder to stay on top than to get there in the first place.
America has had a lengthy and rewarding tenure at the top. The United States emerged from World War II as the world's dominant economic power, and for the next several decades prosperity became an American birthright. We still have the world's biggest and most powerful economy, with investors flocking to the dollar during the recent financial crisis and the Federal Reserve pursuing America-first policies that the rest of the world can only acquiesce.
But every champion suffers defeat sooner or later, and the United States is starting to look like an aging, off-balance heavyweight. Developing countries like China, India, and Brazil weathered the global recession far better and they're now growing at two or three times the rate of the United States. Washington is also the most profligate capital among developed countries, with a shocking amount of debt and no plan to do anything about it. Despite massive amounts of government aid, more than half of all Americans tell Gallup that the economy is still in a recession--or a depression. Median incomes are falling, with living standards likely to follow. The dollar has drifted close to all-time lows against other major currencies. And by most projections, it could be another four or five years before employment is back to levels deemed normal.
Journalist Brett Arends encapsulated this sense of decline recently by arguing that the "age of America" will end in 2016. He based his claim on projections from the International Monetary Fund showing that under one measure of GDP, called purchasing power parity, China would account for about 18 percent of world economic output in 2016, while the United States would account for just 17.7 percent--the lowest level in decades. The U.S. economy would still be larger than China's in nominal terms, and far more productive when measured in output per capita. But Arends argues that the measure he examined gives a more accurate picture of real economic power, since it strips away distortions caused by China's deliberate undervaluing of its currency and other factors.
One could quibble with his reasoning, but there's no denying that China, which recently eclipsed Japan to become the world's second-largest economy, is a rapidly rising power destined to displace the U.S. economy eventually, if only because of its sheer size. The implications are sobering. China is a proud and aggressive country controlled by communist-capitalists who have learned to harness free enterprise to pursue state interests. Sooner or later, it will outspend the United States on defense and perhaps flex its military muscle in confrontational ways. It could also tilt world markets in its direction and siphon off investment from the West, which could be especially destabilizing for nations like the United States that are overdependent on debt.

It sounds scary, and the wide distribution of Arends' story suggests that it struck a nerve. But here's another idea: Maybe it will be good for us when China finally overtakes America. Here are four reasons why:
We need an underdog mentality. America is like the rich, dysfunctional family that lives in the ramshackle mansion at the top of the hill. We're living off of our past and have lost the habit of working hard to earn our livelihood. The neighbors hear us arguing all the time and notice that the property is looking a little shabby. We seem more fixated on amusements and trivial problems than on keeping our house in order.
In economic terms, this plays out in rampant deficit spending, unaffordable giveaways to favored campaign contributors, and grandiose global ambitions undermined by small-minded political one-upmanship. Ordinary citizens are guilty, too, because they have wildly unrealistic expectations that a government veering toward insolvency will continue to take care of them. Nobody wants to sacrifice for the common good, and cries for "smaller government" basically mean smaller government for everybody else but me.
America has a good record of bouncing back when it's fighting for something that's clear and just. We remain a rich country with extraordinary resources that we're just not using very well right now. If falling to No. 2 would generate a common sense of purpose and give Americans something to rally around, it might help generate the kind of determination to solve problems that no blue-ribbon commission or bipartisan study group can generate.

A quick descent would be better than a slow decline. We stopped being No. 1 in a lot of things some time ago--or simply never were. The U.S. poverty rate is close to the worst among developed nations. Our education scores have been middling for years. The Legatum Institute's annual global prosperity index ranks the United States 10th. On healthcare, we spend far more than any nation on earth but have below-average life expectancy for a developed country, an alarming obesity rate and millions who can't even afford healthcare. The jingoistic chant of "We're No. 1!" is usually wishful thinking, because it's hard to find something we are actually No. 1 at.
Yet we're still in denial about the influence we have around the world and our ability to control events we deem in our national (or personal) interest. Jobs are a good example: Trillions of dollars in government stimulus have done little or nothing to speed job creation, which is more robust in other countries where it's happening with far less government aid. If the U.S. economy were no longer the world's biggest, it would be an undeniable sign that decline is real. But until that happens, we're likely to fool ourselves into the thinking that if it's the world biggest economy, it must be healthy enough.

It might force action on economic priorities. Despite a lot of jawboning, politicians have done virtually nothing to reduce the government's gaping deficits or pay down America's $14 trillion debt. Part of the reason is that the rest of the world keeps lending Uncle Sam money at irresistibly low interest rates, prolonging the addiction to debt. There are signs this may change in the near future, but some analysts think it will take a genuine crisis to force politicians to make the deeply unpopular moves--including spending cuts in cherished programs and higher taxes on most voters--that it's going to take to solve this national problem.
Legislators are also dithering on a broad range of other important economic issues. Tech firms complain that they can't get enough U.S.-based engineers, partly because foreigners who come to the United States to attend college or grad school can't get visas to stay after they graduate. So they go back home and work for companies there, or start their own firms. This seems like a no-brainer to fix, yet politically it gets conflated with the gridlock over illegal immigration, which is something altogether different. The United States is also standing by while China builds the world's most modern infrastructure and establishes leadership in important technologies like electric batteries for cars and next-generation solar panels. There's no sense of urgency in Washington about assuring the nation's economic primacy. Maybe a drop in America's economic rank would be the kind of impossible-to-ignore setback that it takes to get politicians' attention.

You can be small and prosperous, too. We mistakenly think that only a big economy can be a successful one. False. In the Legatum Institute's prosperity index, for instance, Norway, Denmark, and Finland rank at the top, followed by a bunch of other countries with far smaller economies than the United States. Most of them spend relatively little on defense, because they're not out patrolling the whole world, and they seem quite content to let others set global policies while they simply stay home and enjoy high standards of living. The trick, of course, is aligning your national ambitions with your capabilities, which is where the United States has fallen out of sync.
We're not the only ones. China, with the second-largest economy in the world, ranks 58th on the prosperity index. Its ranking will probably improve as it gets wealthier, but China will also devote a lot more of its income to an expensive military and to geopolitical infrastructure as it starts to throw its weight around in every quarter of the world. Come to think of it, maybe we should let them.
(By Rick J, Newman - Yahoo!)

Friday, April 29, 2011

Coffee May Rise 40% on Frost After Kraft, Smucker Raised Prices

Brazil, the world’s biggest coffee grower, is facing the risk of frost after hail this month, raising the prospect of a 40 percent jump in bean costs after Kraft Foods Inc. and J.M. Smucker Co. already increased prices.
The chance of frost in Brazil increased with the weakening of La Nina, a cooling of waters in the Pacific Ocean, Brazil’s Somar Meteorologia said this week. Frost in 1994 damaged 35 percent of the crop by 1997, sending prices up 39 percent that year, according to Somar. Should cold weather damage trees this year, coffee may rise to a record $4.20 a pound, the median in a Bloomberg survey of 11 analysts, traders and investors.
Arabica beans have already jumped 24 percent this year on signs demand is outpacing supply. The shortage will be 6.2 million bags in the crop year starting in October, according to Rabobank International. Kraft, maker of Maxwell House coffee, raised prices three times last year. It estimated in February that North American commodity costs would increase $700 million to $800 million this year, or about 1.5 percent of 2010 revenue.
“There is no room for disruption,” said Rodrigo Costa, vice-president of institutional sales at Newedge USA LLC in New York, who correctly forecast a year ago that coffee would climb. “If Brazil has a frost, not only will we see uncharted prices but the situation might become unbearable.”
Arabica coffee for July delivery closed yesterday at $2.992 a pound in New York, after surging to a 14-year high of $3.034, and have more than doubled in the past year. Cocoa futures in New York are up 2.7 percent for the same period and raw sugar is 51 percent higher.

Folgers Coffee

Kraft, based in Northfield, Illinois, increased U.S. prices on Maxwell House and Yuban ground coffees by about 22 percent on March 16, spokeswoman Bridget MacConnell said. Orrville, Ohio- based Smucker, maker of Folgers coffee, raised them by 10 percent in February, Vincent Byrd, director and president of U.S. retail coffee, said on a conference call that month.
Global food costs tracked by the United Nations reached an all-time high in February and the World Bank says that contributed to 44 million more people being driven into poverty in the past year. Inflation is accelerating worldwide, spurring central banks from China to the euro region to increase interest rates, potentially curbing consumer spending.
Arabica coffee, preferred by coffee shops such as Starbucks Corp., climbed as rains associated with La Nina damaged crops in Colombia, the fourth largest producer last year, according to the U.S. Department of Agriculture. Brazil’s crop will be 13 percent smaller than last year, Brazil’s Agriculture Ministry estimates.

Colder Atmosphere

La Nina is now declining and all climate models suggest further weakening, Australia’s Bureau of Meteorology said on April 27.
“As La Nina fades and the atmosphere becomes colder, the cold masses from the South Pole gain intensity and may reach the Center South region” of Brazil, Marco Antonio dos Santos, an agronomist at Somar in Sao Paulo, said on April 27. The Center South includes the state of Minas Gerais, Brazil’s biggest grower of arabica beans.
Cold weather from the South Pole is due in the Center South in the week of May 9 and temperatures are forecast to fall to about 5 degrees Celsius (41 degrees Fahrenheit), Santos said. Coffee trees can be damaged if temperatures fall below 1 degree Celsius, he said.
Frost in Brazilian growing regions can damage trees bearing the following year’s crop. Coffee futures soared to a record $3.375 a pound in 1977 after damage from the “black frost” in Brazil two years earlier, according to Bloomberg data.
“Even without weather disruptions there will be a deficit,” Newedge’s Costa said.

April Hail

There was hail this month in some Brazil growing regions, and the damage was estimated at 50,000 to 60,000 bags, according to Somar. Brazil produced 55.5 million bags last year, according to the USDA. This year’s crop is estimated at between 41.9 million bags to 44.7 million bags by Brazil’s Agriculture Ministry.
“The wild card will be the weather in Brazil,” said Walter “Bucky” Hellwig, who helps oversee $17 billion at BB&T Wealth Management in Birmingham, Alabama and correctly forecast higher gold and oil prices in February. “If Brazil does not have a big crop we will see pressure on prices.”
The earliest frost to damage the crop in Brazil was May 31, 1979, according to Newedge estimates. Brazil’s winter season traditionally extends through August. While Brazilian coffee isn’t deliverable against futures contracts in New York, it’s used in blends by roasters.

Falling Inventories

Stockpiles in producing countries have been falling since 2003, when inventories were at 52.7 million bags, data from the London-based International Coffee Organization show. The 13 million bags in storage now represent 1 1/2 months of global exports, the lowest in at least half a century, according to Jose Sette, the ICO’s executive director.
Inventories in producing nations are 69 percent lower than in 1997 and 71 percent lower than in 1977, years in which coffee prices climbed following frost damage, according to ICO data. Stockpiles were 42 million bags in 1997 and 45 million bags in 1977, Sette said.
“Given what frosts have done to prices in the past, coupled with the tight inventories of arabica, the upside potential if there is a frost is extreme, and records are very likely to be broken,” Keith Flury, an analyst at Rabobank in London said.
(Source: Bloomberg)

Gilt-edged argument

The battle to explain the remorseless rise of the bullion price.

THOSE people who thought that reaching $1,000 an ounce was a sign that the bull market in gold was about to collapse have been proved wrong. The price of bullion recently passed $1,500.
Gold can be viewed in many ways: as a “barbarous relic” that is currently the subject of a speculative bubble; as the one reliable source of value over history; as a harbinger of hyperinflation; as a hedge against global financial or economic collapse; or even as a sign of the rising power of China and India.


Whichever factor you choose to explain gold’s bull run, it is not a short-term phenomenon. Since 2002 the average annual price of gold has risen by double digits in percentage terms in every year bar one (2005, when it gained 8.7%). As yet gold’s price chart does not display the classic bubble characteristic whereby the pace of increase seems to accelerate (although silver has been conforming to that pattern lately).
Gold does exhibit another bubble-like feature, however—the increasing participation of the public. When the last gold bull market peaked in 1980 speculators took part by buying jewellery or coins, complete with retailers’ markups. This time round they are able to buy exchange-traded funds (ETFs) which promise a return linked to the bullion price. As the chart shows, the largest gold ETF has a gold hoard that places it on a par with the reserves of central banks.
Another sign of bubbles is a change in the basis of valuations. Dotcom shares were assessed in terms of “price per click” rather than anything tangible. Here gold presents a problem. It has no earnings or cashflow so it is harder to come up with a fair price.
One approach is to use gold’s purchasing power in terms of life’s essentials such as energy and food. An ounce of gold was worth 12 barrels of oil at the start of 1986; now it is worth around 13. Its purchasing power in terms of wheat has risen more sharply over the past quarter-century but is much lower than it was a year ago.
Mostly, however, gold’s price is expressed in terms of the dollar. So its strength may simply be down to a lack of confidence in paper currencies rather than its own merits. Whereas a strong currency was once a symbol of national pride, few countries appear to relish the prospect today. Central banks have slashed interest rates to almost zero, expanded their balance-sheets (and thus the monetary base) to buy government bonds and, in the case of Japan and Switzerland, intervened to weaken their currencies.
The Swiss franc is usually seen as a very strong paper currency. Gold is 17% higher in Swiss-franc terms than it was at the start of 2010. Remember that, until 1971, the value of most currencies was expressed in terms of gold or silver. On that basis the Swiss franc has just experienced the kind of devaluation that would have been the mark of a crisis in the 1930s or 1960s.
In the eyes of many commentators this lack of confidence in paper currencies makes sense only if high inflation is on the way. But in the developed world measures of consumer inflation are very low. There is spare capacity in the economy and no sign that a wage-price spiral is taking hold. And government-bond markets show no sign of alarm at the inflationary outlook.
Then again, since central banks are such big players in government-bond markets these days, is the yield a true “market price”? The banks are buying bonds as part of their foreign-exchange policies, or as a way of injecting liquidity and bringing down yields, rather than as a way of maximising their returns.
Then there is the issue of higher commodity prices. Jeremy Grantham of GMO, a fund-management group, has compiled an equally weighted index of 33 commodities. This fell by 70% between 1902 and 2002 in real terms. It has regained all that ground in the past nine years. The rise of developing nations is generally deemed to explain this commodities boom. Since raw materials have greater weight in the inflation baskets of such countries, it makes sense for investors in China and India to buy gold as a hedge against this phenomenon.
If it turns out that China (rather than gold) is a bubble and that growth in developing nations disappoints, then you would expect commodity prices to fall sharply and gold to follow suit. But in the absence of such an event, gold’s strength is not entirely irrational.
(Source: Economist)

Thursday, April 28, 2011

Western chains flock to India for fast food success

 McDonald's made its name serving up hamburgers fast, but it took the world's biggest hamburger chain four years to enter India -- without its signature dish.

A number of fast-food and cafe chains -- Starbucks and Dunkin Donuts to name just two -- that are flocking to India would do well to take away lessons learned by established rivals such as McDonald's in navigating a market beset with obstacles.

Industry experts say patience and flexibility in a country where dietary traditions rule may well define successful global restaurant brands in India.

The stakes are high, with India's quick-service restaurant market worth $13 billion and growing roughly 25-30 percent a year, according to Euromonitor and market research firm RNCOS. India's entire food-service market is estimated at $64 billion.

Adapting menus to cater to local dietary needs may be a winning strategy, analysts say. This is not as easy as it seems - Burger King had looked to enter India in 2007-2008, but hit roadblocks when trying to tweak its menu to suit local tastes, according to analysts and several local media reports.

"If you're a global food retailer, you need to have an offering for the Indian consumer ... you cannot push global products," says Pinakiranjan Mishra, partner and national leader for consumer products and retail at Ernst & Young in Mumbai.

"For a select group of consumers you can, but not if you are looking at building a mass presence."

India is the first country where McDonald's decided not to offer beef or pork items. Instead it sells chicken and vegetarian variants to cater to a significant portion of the population that is vegetarian.

Some of its newer competitors such as Denny's Corp , which plans to enter India by mid-2012, are following suit.

"We have had to strip beef and pork out of our menu. We have had to customise it completely," said William Edwards, chief executive of EGS, which is handling the international expansion of Denny's, well known for its all-day menu featuring eggs, sausages and pancakes.

YOUNG AND TRENDY

Analysts estimate that China's fast-food market is nearly six times as big as India's and foreign chains are targeting both markets to take advantage of rapidly growing economies.

Driving the growth in India's fast-food sector is a generation of young and increasingly wealthy consumers with an appetite for western tastes.

More than 60 percent of India's population, or 700 million people, are under the age of 30 -- a prime target for fast-food.

"It's a lot easier to grab a burger at McDonald's than order a vada sambar (savoury doughnut in lentil soup) at an Udipi which is time consuming," said Bidisha Mukerjea, a 24-year-old content writer from Mumbai, referring to Indian local fast-food restaurants. "Udipi food is cheaper but it's about foreign brand attraction, it's just fancy to eat at these new places."

It's no surprise that a host of foreign chains have their sights on India. Starbucks is expected to open its first India store in July or August. Others wanting a foothold include Applebee's, Pollo Tropical, a unit of Carrols Restaurant Group (TAST.O), and hamburger chain Johnny Rockets.
(Source: Economic Times)

Shrinking margins - How is corporte India dealing with it?

The squeeze on margins thanks to surging input costs and zooming interest rates is forcing companies to work overtime to shore up their bottom lines.
Across sectors the belt tightening is being achieved through focussing on supply chain efficiencies, shifting to long-term raw material sourcing and pruning consumer promotions.
BHEL, for instance, has managed to keep material costs in 2010-11 at the previous financial year's range of around 59-60 per cent. This, despite a sharp perking up in material costs over the last few months. “We have begun working extra hard on material cost reductions and initiated integrated operation improvement initiatives like design-to-costs, and lean manufacturing. Coupled with better buying practices and long-term contracts with some material suppliers have helped achieve lower material consumption,” BHEL's Chief, Mr B.P. Rao, said while elaborating on the state-owned firm's cost curb exercise.
Punj Lloyd too, admitted that it is walking the tightrope to sustain profitability without compromising on quality. To overcome high interest rates, new controlling measures have been deployed for increasing efficiency in finance: A better float management system, centralised payment system, mix of different loan products and a combination of rupee and foreign currency funding has been put in place for the Group as a whole. These measures have resulted in cost rationalisation and optimised efficiency, said Mr Atul Punj, Chairman, Punj Lloyd Group.
While explaining that price fluctuation in input costs do have an impact on the company's operations, he said that to a large extent the effect is mitigated by estimating cost contingency at the time of bidding and controlling individual cost fluctuations by drawing long-term vendor agreements. Reducing project completion time was another strategy.
What has helped Nestle India is a mix of cost rationalisation and discontinuing free goods promotions. The consumer products major recently reported an EBITDA growth of 26.7 per cent year-on-year during the latest quarter (Q1), aided by margin expansion. At the operating front, its gross margin expanded by 100 basis points on account of improved product/channel mix and discontinuing of free goods promotions, despite higher cost inflation in milk and sugar prices, pointed out an Angel Broking analysis.
Intermediates sector players such as tyre cord manufacturer SRF Ltd said that in its low margins business improving efficiency is a continuous process. “We plan ahead. There is no knee jerk reaction,” said CFO Mr Rajendra Prasad pointing out that generally in the B2B segment it is possible to pass on some rising input costs to customers.
(Source: Business Line)

Passenger minivans create `magic' in metros

An extra wheel is all it takes for automakers to create new opportunities.
Take the Tata Ace as a case in point. One of the reasons for its success was that it conferred a sense of ownership pride in the mini goods carrier segment traditionally dominated by the three-wheeler. Ergo, the four-wheeled Ace suddenly looked fashionable and prompted Mahindra & Mahindra and Piaggio to follow suit with competing models such as the Maxximo and Ape Truk.
The same principle is now being tried out in the passenger vehicle space where the Magic, a derivative of the Ace, is notching up impressive numbers as a taxi.
On Wednesday, M&M launched the Maxximo minivan which will have a similar role to play across India's vast landscape. Piaggio, likewise, is looking at a people's carrier option for the Ape Mini which could hit the roads in the coming months.
Bajaj Auto has also made it known that it is working on a four-wheeler (and not exactly a car) in its project with Renault.
Sources say the final product will be more on the lines of the Magic and Maxximo. The company has said the same platform would also produce three-wheelers which, in that case, will wrap up key ends in the passenger carrier space.

Auto rickshaw prospects

Will all this affect the prospects of the auto rickshaw? At the time of the Ace launch over five years ago, experts said it was only a matter of time before the cargo three-wheeler was consigned to the archives. Nothing of the kind happened though the Ace spawned a product category which is doing nearly 25,000 units a month. As the numbers continue to grow, it remains to be seen if the three-wheeler will finally bow out.
The same holds true in the passenger segment where the Magic and Maxximo minivan will grow the market while gradually eating into the share of the auto rickshaw. Interestingly, Tata Motors had launched a smaller four-wheeled rival last year called the Magic Iris while M&M recently put out the passenger version of the mini Gio pickup in select markets.
Manufacturers are gung-ho on these products largely because of the poor state of public transport in most cities and towns.
“There is a big opportunity for vehicles like the Magic and Maximmo to double up as taxis and save people the bother of cramming themselves into buses and trains. They also feel a lot safer in these vehicles compared to auto rickshaws which are unstable,” sources said.
With intercity connectivity being the need of the hour across India, these passenger minivans are making the most of the situation. Most State Transport Corporations do not have the money to buy endless number of buses and it is here that the Magic and Maxximo will do their bit.
(Source: Business Line)

India to lead global steel demand

Domestic demand to increase 13.3 per cent, according to WSA data.
The global steel demand this year is expected to increase 5.9 per cent, according to the data made available by the World Steel Association (WSA). India, with an expected growth in steel demand of 13.3 per cent, will lead the steel demand in the world.
The association, whose members produce 85 per cent of the total steel made in the world, in its newsletter about the ‘short range outlook’ on steel in 2011 and 2012, said, “India is expected to show strong growth in steel use in the coming years due to its strong domestic economy, massive infrastructure needs and expansion of industrial production.” It further says that in 2012, India’s steel demand will touch 14.3 per cent, reaching 79 million tonnes (mt) per year.
In 2010, India produced 67 mt steel and is the fifth-largest steelmaker in the world with China as the leader, followed by Japan, US and Russia.
Daniel Novegil, chairman of the World Steel Economics Committee said, “2010 saw a steady recovery of steel demand which began in the second half of 2009 driven by stimulus packages globally, the resilience of emerging economies and an overall market recovery. In 2011, we expect to see a further 5.9 per cent growth in world steel demand.”
The growth in the Western world is expected to be led by the US. The country will see a 13 per cent growth in 2011, at 90.5 mt. Apparent steel use in the EU is forecast to grow by 4.9 per cent to 151.8 mt in 2011 on the back of an export-driven industrial rebound. WSA said, “The largest economy eurozone countries like Germany and France are forecast to enjoy solid recovery in steel use mainly in the automotive and machine building sectors. Other economies (Greece, Ireland, Portugal and Spain) are projected to show slow growth in steel use particularly as a result of weak construction activity.”
China, on the other hand, the world leader in steel consumption, is expected to grow by five per cent in 2011, at 605 million tonnes and is expected to grow by the same percentage in 2012, reaching 635 million tonnes. The association, however, noted, “Given the pace of steel production in the first quarter of 2011, the Chinese apparent steel use could be even higher. However, it is expected that the Chinese government’s efforts to cool down the overheating economy, particularly the real estate sector, will impact Chinese steel demand somewhat later this year.” In Central and South America, one of the leading markets for steel, the apparent use is forecast to grow by 6.6 per cent in 2011 to 48.8 mt. In 2012, the region’s apparent steel use is forecast to grow by 8.3 per cent to 52.8 mt.
The forecast, however, has not been revised yet due to the difficulty of assessing the impact of the earthquake and tsunami in Japan. “The impact of the earthquake and tsunami points to a significant downward adjustment in steel use for 2011 and upward adjustment for 2012,” WSA said.
It is clear from the data that the steel demand will continue to be driven by the growing economies, led by India. Even as the consumption is growing in the western world, WSA predicts that by 2012, steel use in the developed world will still be at 14 per cent below the 2007 level whereas in the emerging and developing economies, it will be 38 per cent above.
In 2012, the emerging and developing economies will account for 72 per cent of world steel demand in contrast to 61 per cent in 2007, WSA noted.
Being amongst the top five steel makers in the world, leading from the front in steel demand growth may be heartening for the country grappling with issues that are derailing the setting-up of newer steel mills. An analyst with a domestic brokerage said, “Steel demand in India is bound to grow because of the infrastructure development. The question is how much of this demand growth will be met by the local steel mills and how much will be met by imports?”
An official from one of the leading steelmakers in India, said, “We have been a net importer of steel but this year due to the commissioning of capacities in the range of 8-10 million tonnes, we might become a net exporter. However, as there aren’t any significant capacity additions expected in 2012, the 14 per cent demand growth is expected to be met by imports again.”
Out of the top steel makers in the country, JSW Steel is expected to commission its 3 million tonnes blast furnace in a couple of months and Tata Steel, too, will add 3 million tonnes by September 2011 giving a major thrust to the steel production in the country.
State-owned Steel Authority of India, too, is ramping up production to reach 24 million tonnes from a shade under 14 million tonnes, currently. The capacity will come in phases over the next few years.
(Source: Business Standard)

Pharma MNCs take the JV route in India

In October last year, Pfizer, the world's largest drug maker, entered into a marketing alliance with biotech major Biocon Ltd to, initially, market globally four of the latter’s insulin biosimilar products. The $350-million deal allows each other to market insulin in separate markets.
According to a recent study by Standard Chartered, global companies face the dilemma of growth versus innovation. While the innovation-led model has traditionally served them well, most would be impacted in the next few years by a steep patent cliff (almost $75 billion of patented products are expected to go off-patent in the next five years) and low research and development productivity (lower number of approvals and blockbusters to replace potential patent loss), it said.
IMS says this would impact regulated market growth (almost 80 per cent of current sales for most global companies), forecast to grow at a compounded annual rate of only three to six per cent. In comparison, emerging markets (EMs) are likely to grow at a 12-15 per cent rate. EMs contributed almost half of global growth in the past few years (despite a 20 per cent market share) and this contribution is projected to increase to 70 per cent in the next five years.
‘THE INDIA DRAW’

Ranjit Kapadia, vice-president, institutional research, HDFC Securities, said, “The Indian market, which grows at 17-18 per cent annually, attracts all the major MNCs to strengthen their presence here. Also, India has a 1/5th share of global population which helps in expanding the pharma markets quite well. Through the alliances, apart from India, all the other emerging markets like Australia, Africa, Middle East and Latin America can be tapped.” The valuation remains high and they prefer the alliance route than the acquisition one for the time being, he added.
Another key feature of EMs is that consumers primarily pay for most medications from private means, unlike in regulated markets where a large portion is borne by state/insurance players. Coupled with relatively lower incomes, consumers are thus more price-sensitive than in other markets, the study says. Also, the manufacturing cost in India is 35-40 per cent cheaper than that of US or European markets.
According to experts, the valuations of Indian pharma companies are still on the high side in the backdrop of the Abbott-Piramal and Daiichi-Ranbaxy deals. This forces multinational corporations to think on buyouts.
According to data from VCCedge, in 2010, apart from $3.7-billion Abbott-Piramal deal, the only single deal in pure pharma space was that of US-based Avantor's buyout of RFCL from ICICI Venture for $112 million. However, in 2009, about five inbound deals took place, where Sanofi-Aventis bought Shantha for $625 million, Hospira Inc acquired Orchid for $400 million, the $133-million Mylan-Matrix deal, Pfizer Animal Health's buyout of Ventex AFCL from ICICI Venture for $75 million and Ventoquinol's acquisition of Wockhardt's animal health business for $31 million. In 2008, only a single inbound deal took place, where Ranbaxy was bought over by Daiichi Sankyo for $4 billion.
However, according to Rajeev Dalal, partner, transaction advisory, at Ernst and Young, the Daiichi-Ranbaxy or Abbott-Piramal kind of deals cannot be ruled out. He said: “Someone who is having zero presence in India still explores a possibility for buyout, even if the valuations are high. Deals similar to Abbott-Piramal will give a high hand over one of the largest formulations market like India. But the alliance is a win-win deal for both parties, where Indian firms can enjoy the R&D expertise of their multinational counterpart.”
Last year, Anglo-Swedish drug maker AstraZeneca signed its first branded generics supply deal, with Torrent Pharmaceuticals. In 2009, a similar deal was signed by British drug maker GlaxoSmithKline with Dr Reddy's Laboratories.
(Source: Business Standard)

Business Standard - My responses to investor questions

1)    With Akshaya Tritaya around the corner, I have been advised to buy units of gold exchange-traded funds (ETFs) instead of physical gold. Is it advisable to hold gold in demat form instead of physical gold? How does an ETF reflect the price of gold?

Introduction of a gold ETF has made life much simpler and better for gold investors. Investment in gold through a gold ETF is more convenient, safe and transperant(because the pricing is market-linked), as compared to physical gold. The price of a unit of gold ETF almost reflects the price of actual gold. 

2) IT majors, TCS and Infosys have posted mixed results for the fourth quarter. What is your take on investing in IT stocks for the medium-term?

The business environment is conducive for the Indian IT business. However, intensifying competition from global IT MNCs, volatile currency and manpower shortage, are headwinds facing these IT majors. Internal res-structuring in some of the bell-weathers is also putting temporary pressure on their businesses. However, on a correction, one can buy into IT majors that have no management issues and have a robust business model. If one wishes to take some extra risk, for some extra return, midcap IT stocks with good managements and good business models, can also be considered for investment. Midcap IT stocks quote at a significant discount to the front-liners and hence present good value, for investment.

3) I am 24 and have recently started investing in stocks. I currently hold a few blue chip stocks. Companies would soon start mailing out their annual reports. What parts / information should I watch out for in these? How can I use the same for making any investment decisions?

Your desire to read annual reports and thus be up-to-date with your investments, is certainly praiseworthy. Please go through the director’s report, the management discussion and analysis, the auditor’s report and notes to accounts, while going through the annual report. If you are a connoisseur in finance, reading through the financial statements is highly recommended. If the concerned company has reported better profitability, has pricing power, has reported a better return on capital employed, has no or modest leverage and has generated positive cash flows, one can take a favourable investment view towards them, subject to their valuations being attractive.

4) One of the ongoing initial public offers (IPOs) is priced ‘at par’. What does this mean? Does that necessarily mean that the IPO is very cheaply priced?

Pricing an IPO at `par’ means the offering is being done at the stock’s face value. However, it does not mean that it is cheaply priced. Investment decisions should be based on the attractiveness of a stock’s valuation at a price rather than on it’s absolute price, itself.. A stock may look unattractive at `par’ prices or may look quite attractive at prices that are significantly above par. The attractiveness of a stock could be judged using various valuation methodologies like PER, price/book value, enterprise value/ebitda, market cap/sales, etc,.

Tuesday, April 26, 2011

AC market feels the heat of delayed summer in North

At Delhi's crowded Laxmi Nagar market, air-conditioner dealers are a worried lot. Unlike last year, when customer footfalls and sales were peaking in April, this year selling activity is yet to pick up because of the late start of summer in Northern India.
Incremental or secondary sales which peak during summer are down 25-30 per cent, compared with the same period last year and companies may find it difficult to match last year's volumes. “Sales have not picked up as expected. The overall AC industry is witnessing a drop of 30 per cent in terms of sales prospects. In 2006, due to similar weather conditions we saw sluggish sales in the first part of summer, but it picked up subsequently. Though there has been a delay in summer, we hope AC sales increase gradually,” Mr Manish Sharma, Director–Marketing, Panasonic India, said.
Almost all major manufacturers including Sasmung, LG, Haier and Onida talk about a similar trend. According to the industry players, the north accounts for the largest chunk of AC sales with as much as 40 per cent coming from the region. While the west follows with 30 per cent and 14 per cent from the south, the east accounts for a mere six per cent.
 “ Yes, there has been delay in onset of summer season in North India, but we can see good demand across India in the coming months. We are targeting a turnover of Rs 3,500 crore for air-conditioners,” Mr Y.V. Verma, COO, LG Electronics India Ltd, notes.
The overall room AC market in India is estimated at 3.2 million units last year and is valued at Rs 5,500-6,000 crore. It is growing at over 30 per cent annually. Split ACs, at present, dominate the AC industry with more than 65 per cent of all units sold last year Dealers also point out that consumers are likely to be put off by the prices. Prices of air-conditioners have moved up anywhere between 7 and10 per cent owing to high commodity prices and freight costs since October last year. Therefore, the additional burden on the consumer is anywhere from Rs 1,500-4,500 compared with last season.
“Input costs have increased by over 15 per cent in the last three months. Not all of that has been passed on to the consumers. This is creating a significant pressure on the profitability of the industry. Consumer prices have increased by nearly 10 per cent as compared to last year,” Mr Vipul Mathur, GM and Business Group Head, Onida Air conditioners, Mirc Electronics, said.
Stating that air conditioner market was growing at around 30 per cent during January-March, he said, the secondary sales in April have been below expectations due to the weather disturbances in most parts of the country. “Against a growth plan of 35- 40 per cent most brands are facing difficulty in matching their last year volumes,” he added.
(Source: Business Line)

TV broadcasters increase rates by 20%



Advertisers may have to brace for an across-the-board rate increase in television advertising, as major TV broadcasters like Zee and Colors are looking to raise ad rates by 10-20 per cent. This decision was taken due to the increased investment in technology and growth in satellite TV audiences, adding to production and distribution costs.
STAR India has already increased its ad rates with immediate effect by 20 per cent across all its 33 channels, “STAR has achieved an unprecedented growth of 30 per cent in the last two years. The increase in ad rates was necessitated by spiralling cost of talent, increased investments in technology, advanced delivery and distribution platforms as well as increased production costs,” said STAR India Ad Sales President Kevin Vaz. The network recently announced the launch of five of its popular entertainment channels in high-definition format, among other such initiatives.
Advertisers on an average will now shell out Rs 1.8 lakh to Rs 2.05 lakh for a 10-seconds spot, for a top-rated show on STAR Plus, as compared to Rs 1.5 lakh to Rs 1.75 lakh charged previously.
According to a Zee official, a 10-15 per cent rate rise has already been effected from April 1 on all deals, depending on client spending patterns. “In the general entertainment (GEC) space, we have to juggle around the package provided. Increasing ad rates is a continuous process in our company, and this year also we have done it,” he added.
Media buyers say television channels’ ad rates differ on parameters of various deals. “The advertisers will have to understand the new rate card before striking new deals,” said a senior official from Group M, a media investment management operation .
Typically, the ad rates are bought by the advertisers, on the basis of cost per rating point (CPRP), which indicates the percentage of viewers watching the programme. “Every new deal with the advertisers has a higher CPRP than the earlier year,” a media buyer added. The number of cable and satellite (C&S) homes have increased from 90 million in 2009 to 116 million in 2011.
Broadcasters, having reckoned with the fact that this growth in the C&S market effectively translates into an increase in reach, have begun reworking rates for all contracts that are up for renewal with advertisers.
“Our network reach has increased and at the same time the cost of reaching 1,000 people for the advertiser has reduced by 38 per cent in the last two years. This rate increase is just a part correction in lieu of the growth the network has shown in the past two years,” said STAR India Chief Operating Officer Sanjay Gupta.
According to a KPMG report, most broadcasters see 80 per cent of their revenue coming from advertising. In 2010, advertising spends across television was Rs 10,300 crore and is expected to grow at compound annual growth rate (CAGR) of 16 per cent to Rs 21,400 crore, said the report.
(Source: Business Standard)

Food inflation could affect millions in India

Rising food and fuel prices could hurt growth in India and push millions of countrymen into extreme poverty, Asian Development Bank said on Tuesday.

India will be badly affected by high food prices as a 10% increase could push close to 30 million Indians below the poverty line, said an ADB study titled 'Global Food Price Inflation and Developing Asia'.

The findings could raise alarm bells in the policymaking circles of Asia's third-largest economy. The Planning Commission estimates that close to a third of India's 1.21 billion people are poor. "The government is taking all measures to keep food prices under check," said Finance Minister Pranab Mukherjee . "I will respond to the ADB report at its forthcoming annual meeting," he said.

A persistent rise in food prices had burned a hole in the wallets of most consumers. Annual inflation in food articles, which rose to 22.9% in June 2010, stood at 9.47% in March this year, driven by a 23% increase in the prices of fruit and a 13.6% rise in prices of eggs, meat and fish. Prices of cereals rose 3.96% while those of pulses declined 4.17%.

Domestic food inflation in developing Asia averaged at about 10% in the first two months of 2011 while international prices rose more than 30%. A sustained 10% increase in domestic food prices could push an additional 64 million people, or almost 2% of Asia's 3.3 billion people, below the poverty line of $1.25 a day, the study warned.

Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia," said ADB Chief Economist Changyong Rhee. "For poor families in developing Asia which already spend more than 60% of their income on food, higher prices will further reduce their ability to pay for medical care and their children's education," he said.

ADB advised countries to refrain from export bans on food items and to strengthen social safety nets. If the trend in global food and oil prices persists for the rest of the year, economic growth in Asia could be lower by up to 1.5%, said the ADB study. India could see close to 1% lower growth in 2011.

"Food inflation is the worst kind of tax, affecting the poor much more as they spend most of their income on food. The government has to take a long-term view of the problem and insure the poor against food inflation," said Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices, which fixes the support prices of agricultural commodities.

Some economists said inflation has already started impacting growth in India. "The GDP growth would be lower in 2011-12 than last year's official forecast of 8.6%," said Sunil Sinha, senior economist at rating agency Crisil .

India recovered from the global economic downturn quickly, growing at 8% in 2009-10. The Indian economy is estimated to have grown 8.6% in the fiscal year ended March. The government expects the economy to expand 9% in the current fiscal year.

Inflation based on wholesale price index hovered around 8.9% in March, almost one percentage point above the Reserve Bank of India forecast of 8%. The central bank's efforts to tame inflation through eight back-to-back rate hikes last year did not make much impact. Most economists expect the RBI to raise key policy rates by another 75-100 basis points this year.
(Source: Economic Times)

Monday, April 25, 2011

Goldman forecasts emerging equities bonanza

China could overtake the US in terms of stock market capitalisation by 2030 as the market value of equities in emerging nations soars, powered by expanding investment and by economic growth, says a report by Goldman Sachs.
In a bullish view of the next two decades, the US investment bank sees the value of the globe’s emerging stock markets rising fivefold to $80,000bn from $14,000bn (in constant US dollars) today, taking the emerging market share of global equity markets from 31 per cent to 55 per cent.
The Bric countries – Brazil, Russia, India and China – may see their share rise to 41 per cent, a number which highlights their dominant role in the rise of the emerging world, at least in financial terms.
China alone could see its stock market’s share of global equity valuations to increase from 1 per cent 10 years ago and 11 per cent today to 28 per cent in the next two decades.
By 2030, the top three stock markets in order could be China, the US, India, with Japan and Brazil sharing fourth place. Russia could be sixth, ahead of the UK, France and Germany.
The projections are based largely on the long-term extension of past trends, which have, for example, seen emerging nation stock market valuation increase sixfold in the last 15 years. The authors said they are “fully aware of the uncertainty surrounding long-term forecasts” but they think “setting out logically reasonable estimates” helps investors to plan ahead.
“The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development,” said the report published on Wednesday. “Developed market institutional asset management pools will need to increase their holdings of emerging market equities.”
Goldman said developed-country investment funds, which now hold about 6 per cent of their assets in emerging market equities, could increase the allocation to 10 per cent by 2020 and 18 per cent by 2030. With their total assets growing, this could translate into $4,000bn in emerging market equity purchases over 20 years.
Meanwhile, growing savings pools in emerging markets may bring greater stability to emerging nation financial markets – a big plus for all investors.
Financial intermediaries are likely to see big profit opportunities as these developments gather pace, with $420bn in revenues predicted just from primary issuance and secondary market commissions, said Goldman. Revenues from derivatives and so forth could “increase this figure significantly”.

Maruti Alto remains top selling car, Indica, i10 slip

The domestic passenger car pecking order saw a few upsets last fiscal.
While Maruti Suzuki India retained the crown with Alto still a clear number one, Hyundai Motor India’s i10 and Tata Indica slipped a rung to settle at number three and number six, respectively.
Tata Motors’ sedans, Manza, Indigo and Marina, together climbed three rungs to the eighth position whereas Hyundai Santro fell three rungs to become the 10th largest selling car in India.
Interestingly, Alto sales at 346,840 last fiscal, were almost twice
that of runner-up WagonR at 163,019 units. Also, the gap between WagonR and i10 was a mere 1,159 units.
Arvind Saxena, director, sales and marketing, Hyundai, told DNA that the new i10 was launched around August 2010 so that previous stock had to be exhausted on priority at that time. “So we did less despatches for some time.” He said that i10 sales in the March quarter of fiscal 2011 were 46,014 units, 8-10% higher year on year.
So while Maruti Suzuki India has four of the five top selling models in the country under its belt - Alto, WagonR, Swift at no 4 and Dzire at no 5 - Tata Motors had to be content with the sixth spot. A Tata Motors’ spokesperson said “the Tata Indica family comprises the Indica range and the Vista range. The Vista range is witnessing expected growth. But sales of the Indica range in 2010-11 were marked by the lack of a peppy BS4 compliant diesel engine, till we introduced the Indica eV2, with an all new CR4 Common Rail Diesel engine, in March 2011. We are looking forward to good sales of the family in 2011-12.”
A Maruti spokesperson said that WagonR sales were up 12.5% year on year after a full model change was introduced. The company invested `290 crore in the model change and offered the car in CNG and LPG options.
As per a report by Crisil analysts Manoj Aluru, Niyati Ruparel, Hetal Gandhi and Sridhar C, the compact (A2) passenger segment grew strongly by 23.7% in March 2011, mainly led by momentum in sales of older models such as Alto while newer models continue to have consistent volumes.
They noted that demand has been consistent for new models such as Ford Figo (8,926 units), Polo (3,881 units), Beat (2,998 units) and Micra (2,060 units). These new models contributed to around 12.7% of A2 segment sales in March 2011. Sales of Tata Indica dropped 40% mainly due to high competition from newly launched models. “In March 2011, Tata Motors and Hyundai Motors lost their market share mainly to Maruti Suzuki and new players such as Nissan and Volkswagen.”
They also concluded that Maruti’s share in compact cars increased about 8% to 56.2% (48.3%) last fiscal whereas Hyundai settled at 21.4% (25.4%) and Tata Motors at 5% (10.3%).
(Source: DNA)