Red-hot oil burns a hole in current account

For First Time After 2000, Current Account In BoP Ends In A Deficit During Q4

RUNAWAYoil
prices have cast a shadow on India's macro numbers. For the first time
in eight years, India recorded a deficit in its current account in the
country's balance of payments during the fourth quarter of a fiscal. A
sliding stock market and a major slowdown in debt offerings only add to
the sense of gloom.
On Monday, the Sensex fell to its lowest
close in 14 months at 13461.60, down 340.62 points or 2.47% from its
previous close. Bond yields rose as market sentiment was hit by
concerns about tightening liquidity. Yield on the 10-year benchmark
bond ended the day at 8.69%, rising from Friday's close of 8.58%.
The
current account during the fourth quarter of 2007-08 ended in a deficit
despite a 36% rise in income from services and remittances from Indians
abroad. This is mainly attributed to the surge in oil prices.
The
current account in the balance of payments measures the net position of
a country's exports and imports of goods and services. A deficit
implies that imports far outpace exports.
An economy's current
account deficit is also a measure of how much external savings it
succeeds in absorbing, to enhance investment over the level permitted
by domestic savings. India's current account deficit has consistently
been below Plan targets. Even with an abnormal spurt in imports in the last
quarter, thanks to soaring crude prices, the current account deficit
amounted to $17.4 billion or 1.5% of GDP, according to a release by the
Reserve Bank of India. At this level, the deficit is modest and
entirely sustainable and desirable. The trouble, according to
economists, would be if the deficit balloons out of hand in the coming
months, thanks to ever rising crude prices.
According to the
latest provisional data released by the Reserve Bank of India, the
current account deficit stood at $1041 million during the quarter ended
March 2008 compared with a surplus of $2,563 million a year ago. 'Current a/c deficit still within acceptable levels'
THIS
is despite the fact that services income and remittances among others
being high ($22.75 billion) to absorb the trade deficit of $23.79
billion during the quarter. India runs a deficit on the current account
overall but over the last eight years, the last quarter of a fiscal has
seen a hump in flows which results in a surplus on this account.
The
silver lining, however, is in the form of remittances by overseas
Indians. Remittances touched a new high and even net foreign direct
investment (FDI), which continued to be robust despite a huge growth in
outbound FDI.
Government managers reckon that it is too early
to set-off the alarm bells. Last week, chief economic advisor Arvind
Virmani told ET that the net (negative) effect of the oil price spurt
on the current account deficit could be much less than what pessimists
portend. This is because high oil prices (now at $143 a barrel) result
in a higher income and demand for goods and services from oil exporting
countries, which could be an opportunity for India, he said. According
to Aditya Birla group chief economist Ajit Ranade it is quite
heartening to note that despite high crude prices, the current account
deficit at 1.5% of GDP is still within acceptable levels. "But we will
have to watch out in the next quarter. If there is a slowdown in the
global economy, we need to be also vigilant about the slackening of
inflows through services exports," he said.
Yes
Bank chief economist Shubhada Rao said that the current account deficit
was entirely due to the crude import bill. If crude prices continue to
be over $130 a barrel, the current account will remain under stress.
The overall balance of payments for the quarter ended in a surplus of
$24.99 billion ($20.45 billion) on the back of better capital inflows
of $25.4 billion ($17.13 billion) during the quarter.
The current account deficit for the full fiscal year widened
by a further $17.4 billion, 78% higher than previous year's deficit of
$9.77 billion. Remittances also continued to post a strong growth. The
year ended with the highest ever remittances as reflected in private
transfers at $40.78 billion as against $27.94 billion a year ago. Net
invisibles including remittances, software services income and
investment income 36% increased from $53.4 billion to $72.65 billion.
Capital account surplus during the quarter amounted to $25.42 billion
during the quarter ended March 2008 driven largely by strong growth in
FDI, portfolio investment and borrowings by India Inc.
For the
full financial year, the capital account surplus more than doubled to
$108 billion, compared to $45.77 billion last year. Foreign direct
investment ($15.54 billion), portfolio investment ($29 billion) and
external commercial borrowings ($22.11 billion) accounted for a bulk of
net capital inflows during the year.

Quick Bytes

Deccan Aviation launches helicopter charter service

•
BANGALORE: Private sector company Deccan Aviation on Monday announced
the launch of helicopter charter service from BIA (Bangaluru
International Airport) to select locations in the city, a Deccan
Aviation release stated. The fare for these helicopter charters are in
the range of Rs 4,800-5,800 per person (per trip).
USOF meet on July 2 to chart roadmap for more towers

•
NEW DELHI: Department of telecom (DoT) has called a meeting on July 2
to start the process for phase II of shared mobile infrastructure
network in rural areas which would to attract more players to these
untapped markets. Universal Service Organisation Fund (USO) has already
launched the initiative to provide subsidy support for setting up and
managing 7,871 infrastructure towers.
Kinetic to start component supply for Nano in 2 mths

•
MUMBAI: Kinetic Engineering on Monday said it will start supplying
component for Tata Motors' small car project within the next two
months. "We will begin supplying component to Tata Motors' small car
project within two months from now," said Kinetic Engineering chairman
Arun Firodia.
No need of subsidies for wind energy firms: Tulsi Tanti

•
BANGALORE: The billionaire chairman of Suzlon Energy Tulsi Tanti has
said wind energy firms do not require subsidies, as the prices of
fossil fuels like oil, gas and coal are becoming more expensive.
Quoting Tanti, German business weekly WirtschaftsWoche said that wind
energy does not need subsidies as the fossil fuels are turning more
costly.
Zenith Software to tie up with Norway-based SOC

•
BANGALORE: Zenith Software Ltd (ZSL) based in Banglore, announced its
plans to foray into the Scandinavian market through partnership with
Norway-based Software Offshoring Consulting on Monday. Software
Offshoring Consulting (SOC) is part of the Norwegian Data-Invest Group,
according to a statement released by ZSL.
Satra Properties to develop Rs 120-cr project in Dubai

•
MUMBAI: Real estate developer Satra Properties on Monday said it will
develop about Rs 120-crore commercial complex in Dubai for which it has
purchased property worth Rs 29.7 crore.

Credit crunch slows cement companies’ expansion plans

Rising Raw Material Costs, Real Estate Slowdown Add To Worries

Mithun Roy & Kausik Datta MUMBAI

COSTLIER
raw material and tight credit conditions have slowed down cement
companies' ambitious Rs 50,000 crore expansion plan to add 80-90
million tonnes capacity in three years. Adverse economic factors and
problems in land acquisition have made expansion almost impossible,
industry officials told ET. Some of them said they will be happy if
even half of the proposed expansion goes through.
Holcim
executive committee member Paul Hugentobler told ET that "not many
companies who had announced expansion plans two years ago are on
schedule." A Holcim team dispatched to photograph sites of some new
projects reported last week that there is little progress on the
ground. "The equity market is dead and the debt market is not in a good
shape, making fund-raising a huge task," said Mr Hugentobler.
Yet,
according to Mr Hugentobler, this would not hurt Holcim much. "We have
three strong balance-sheets to bank on," he said, referring to the
financial strength of ACC, Ambuja Cements and parent Holcim, "which is
not the case with many others." Expansion plans of ACC and Ambuja
Cement may be a little delayed, he said, indicating that won't be a
cause for major concern.
This was corroborated by an analyst
with a domestic brokerage. He said ACC's expansion plans at Bargarh,
New Wadi and Chanda are slightly behind schedule. These will add 7.2
million tonnes of capacity, taking total capacity to 29.6 million
tonnes.
According to the Cement Manufacturers' Association, last year saw capacity addition of 27
million tonnes, taking the total to 170 million tonnes. The demand is
estimated at around 200 million tonnes and is expected to grow at
8-10%. Some doubt the trend will continue. "2007-08 was a golden year
due to large government spending. High commercial activity and the
housing boom due to higher per capita income kept cement offtake growth
in double digits," said an analyst.
Daljeet S Kohli, head of
research, Emkay Global Financial Services said that margins are facing
rising pressure. "The sales growth rate fell sharply with a drastic cut
in house construction as the real estate industry is under pressure."
Cement
makers blame the government. Said ACC managing director Sumit Banerjee:
"The cement industry was targeted by the govern-ment, when the
commodity is cheaper than any other commodity." An analyst said a large
chunk of the cement industry's revenue goes to the exchequer as tax and
loyalty payments. The government has taken several steps to check
cement prices, the latest being an export ban (since relaxed) and a 12%
ad valorem duty on cement above Rs 250 per 50 kg bag. Last year, cement
import was made duty-free.
The
expansions at Grasim's Shambhupura and Tadpatri units will be over in
H1FY09, while the Kotputli plant is expected to go on stream in Q3FY09.
Upon completion, Grasim's cement capacity (including UltraTech) will
rise to 48.7 million tonnes. Grasim commands 30% share in Maharashtra
and Karnataka, which account for 42% of India's cement market. Analysts
Jagdishwar Toppo and Nitesh Jain of Enam said in a note that the sector
has underformed on concerns of large impending capacity additions,
substantial erosion in industry profitability due to price correction,
cost pressure and government intervention. Even brownfield expansions
are delayed 6-9 months and greenfield projects are delayed by about one
year as against an anticipated delay of 3-6 months.
India
Cements is planning to spend Rs 2,100 crore for capacity expansion,
raising it to about 14 MTPA from 9.1 MTPA through debottle-necking,
upgradation of facilities and setting up two grinding units. The units
of 1 MTPA capacity each would come up at Chennai and Perli by the end
of Q1 FY09.

Stock, bond slumps echo 1974 bear run

Michael Patterson NEW YORK

IT'S
been 14 years since investors suffered as big a retreat in stocks and
bonds and some of the largest money managers say the losses may have
more in common with the 1974 bear market before the worst is over. The
Standard & Poor's 500 Index dropped 3.4% since March and investors
in Treasuries lost 2.88%, the steepest combined plunge in 14 years,
according to data compiled by Merrill Lynch and Bloomberg. Equity and
debt markets fell in tandem for only the sixth time since the savings
and loan crisis of the 1990s as oil closed at a record 19 times and
concern grew that inflation will cut the value of bond payments.
Dreman
Value Management, BlackRock and Cambiar Investors, which together
oversee $1.38 trillion, are buying banks, phone companies and oil
producers to weather more declines in benchmark indexes. David Dreman,
whose DWS Dreman Small Cap Value Fund beat 90% of its peers over five
years, bought Cleveland-based KeyCorp as financial firms fell to a
10-year low last week. BlackRock added AT&T for the best dividend
yield since 2006. Cambiar says Marathon Oil is inexpensive.
"Between
inflation and the liquidity crisis, this is one of the toughest markets
I've seen," said Dreman, who oversees about $15 billion in Jersey City,
New Jersey. "But it's not a market you sell into. Any losses you take by being too early will be more than offset by buying cheaply."
Dreman
founded his firm in 1977, three years after the S&P 500 fell 30%
for its worst annual loss in the last 60 years. Stocks plunged as the
Arab oil embargo pushed up US consumer prices as much as 12.3%, at the
time the biggest annual advance since 1947. Consumer prices climbed
4.2% in the 12 months to May. The Reuters/Jefferies CRB Index, a gauge
of 19 commodities, added 49% in the past year, exceeding the record 48%
annual gain in 1973.
Investors
were whipsawed this month by the Dow Jones Industrial Average's worst
June since 1930 and the biggest losses in Treasuries in four years.
Bets that the Federal Reserve will increase interest rates helped spur
a 1,292-point tumble in the Dow average this month on concern higher
borrowing costs will prolong the worst profit slump in six years.
The
Dow industrials added 37.86, or 0.3%, to 11,384.37 as of 9:45 am in New
York. The S&P 500 increased 5.23, or 0.4%, to 1283.61. Just two of
10 industries in the S&P 500 rose this year. Energy producers
gained 6.3% and a group of mining and chemical companies added 0.5%.
Massey Energy, the fourth-biggest US coal producer, advanced 155% for
the index's biggest rally after the Richmond, Virginia-based company's
first-quarter profit topped analysts' forecasts. — Bloomberg

We Can Lower Oil Prices Now

By MARTIN FELDSTEIN

July 1, 2008

Although
most experts agree that financial speculation was not responsible for
the surge in the global prices of food and energy, many people remain
puzzled about the source of these remarkable price rises. Economics
offers a simple supply-and-demand explanation and reason for optimism
about the future of commodity prices. In the case of oil, economics
also suggests how policy changes today that affect the future could
quickly lower the current price of oil.

We all know that rising
incomes in China, India and the Gulf states have increased the demand
for oil and many other commodities. But how could the modest, one-year
rise of these demands lead to 100% increases in the prices of oil and
other commodities? Let's take a look first at perishable agricultural
commodities.

Corbis

In
the short run, there is little scope for increasing the supply of corn
in response to a global increase in demand. For demand and supply to
balance – for the market to clear – the price of corn must rise.

If
the demand for corn were very price-sensitive, a relatively small
increase in price would reduce global demand by enough to offset the
initial rise in demand. However, since demand is actually quite
insensitive to price in the short run, it takes a very large price rise
to bring global demand into line with supply.

Here is a
simplified picture of what happened in the past year. The quantity of
corn demanded by high-growth countries rose gradually, increasing
eventually by an amount equal to, say, 10% of the previous total global
level of corn consumption. Since the supply of corn did not increase,
the price had to increase enough to reduce corn consumption in other
countries by 10%. If it takes a 10% increase in the price to reduce the
quantity of corn demanded in the first year by just 1%, it would take a
100% increase in the price of corn to offset the initial 10% rise in
the quantity of corn demanded.

In reality, the picture is
complicated by the substitution in both supply and demand among
different agricultural commodities, and by the role of the corn ethanol
program. But the basic explanation holds: With a very low short-run
price sensitivity of demand and little scope to raise supply in the
short run, even a relatively small increase in corn demand by the
high-growth economies can lead to a very large short-run rise in the
price of corn.

Fortunately, the price sensitivity of both demand
and supply will increase with time. This implies that the rising demand
from China and other countries may eventually be accommodated with a
price lower than today's level.

The situation for oil is more complex, but the outcome for prices is potentially more favorable.

Unlike
perishable agricultural products, oil can be stored in the ground. So
when will an owner of oil reduce production or increase inventories
instead of selling his oil and converting the proceeds into investible
cash? A simplified answer is that he will keep the oil in the ground if
its price is expected to rise faster than the interest rate that could be earned on the money obtained from selling the oil. The actual
price of oil may rise faster or slower than is expected, but the
decision to sell (or hold) the oil depends on the expected price rise.

There
are of course considerations of risk, and of the impact of price
changes on long-term consumer behavior, that complicate the oil owner's
decision – and therefore the behavior of prices. The Organization of
Petroleum Exporting Countries (the OPEC cartel), with its strong
pricing power, still plays a role. But the fundamental insight is that
owners of oil will adjust their production and inventories until the
price of oil is expected to rise at the rate of interest, appropriately
adjusted for risk. If the price of oil is expected to rise faster,
they'll keep the oil in the ground. In contrast, if the price of oil is
not expected to rise as fast as the rate of interest, the owners will
extract more and invest the proceeds.

The relationship between
future and current oil prices implies that an expected change in the
future price of oil will have an immediate impact on the current price
of oil.

Thus, when oil producers concluded that the demand for
oil in China and some other countries will grow more rapidly in future
years than they had previously expected, they inferred that the future
price of oil would be higher than they had previously believed. They
responded by reducing supply and raising the spot price enough to bring
the expected price rise back to its initial rate.

Hence, with no
change in the current demand for oil, the expectation of a greater
future demand and a higher future price caused the current price to
rise. Similarly, credible reports about the future decline of oil
production in Russia and in Mexico implied a higher future global price
of oil – and that also required an increase in the current oil price to
maintain the initial expected rate of increase in the price of oil.

Once
this relation is understood, it is easy to see how news stories, rumors
and industry reports can cause substantial fluctuations in current
prices – all without anything happening to current demand or supply.

Of
course, a rise in the spot price of oil triggered by a change in
expectations about future prices will cause a decline in the current
quantity of oil that consumers demand. If current supply and demand
were initially in balance, the OPEC countries and other oil producers
would respond by reducing sales to bring supply into line with the
temporary reduction in demand. A rise in the expected future demand for
oil thus causes a current decline in the amount of oil being supplied.
This is what happened as the Saudis and others cut supply in 2007.

Now
here is the good news. Any policy that causes the expected future oil
price to fall can cause the current price to fall, or to rise less than
it would otherwise do. In other words, it is possible to bring down
today's price of oil with policies that will have their physical impact
on oil demand or supply only in the future.

For example,
increases in government subsidies to develop technology that will make
future cars more efficient, or tighter standards that gradually improve
the gas mileage of the stock of cars, would lower the future demand for
oil and therefore the price of oil today.

Similarly, increasing
the expected future supply of oil would also reduce today's price. That
fall in the current price would induce an immediate rise in oil
consumption that would be matched by an increase in supply from the
OPEC producers and others with some current excess capacity or
available inventories.

Any steps that can be taken now to
increase the future supply of oil, or reduce the future demand for oil
in the U.S. or elsewhere, can therefore lead both to lower prices and
increased consumption today.

Mr. Feldstein, chairman of
the Council of Economic Advisers under President Reagan, is a professor
at Harvard and a member of The Wall Street Journal's board of
contributors.

This is not bear market, this is a mad market - rethink yourself

What we are seeing is entirely an Mad market rather than calling it a
Bear market. Everyone starting from FII , DII, HNI, Small Investors
are not seeing the fundementals of the companies but simply selling.



Infact investors are waiting for every next trading day to dispose
the stocks rather than accumulating , if everything goes this way how
can market sustain , adding to this 9 out of 10 analysts comes out and
say " we may see 10000 levels very soon " infact these coments also
allow the investors to rethink on what they are doing.



Today if you see many A groups stocks like ABB , SBI , ICICI and so
called the best stocks in Reality DLF, UNITECH , PARSVNATH all are at
their 52 week low, did any one expected that these stocks be touching
lows this ways , for me i never thought DLF trading below 400 , ABB
below 800 , GMR at 80 , OMAXE at 120, BGR at 210 which were almost 5
times from the present price few months back.



Ok, now this is not time to blame the Crude, Inflation , Government,
etc. No one expected crude to march towards the 150 $ , none imagined
inflation in double digits and none thought the time of disagreement
between left and congress , but unfortunately everything happened in
the same time and this caused markets to melt like ice.



What should we do now ?



Those invested in large quantities have to wait rather than selling and can buy in small quantities and average them.



Those invested partly can buy in small quantities, may be 20 % in every 250 points crack and can average till 12000.



Those who are planning to invest can start investing 10% on every 100 points crack.



(Note : All investments to be in selected A group stocks and which have lost more than 50-60% of their highs )



We hope this is the best way to tackle as the selling in the markets
may continue for some more time as the investors acting mad and
converting fundementally sound market into bear market. Few months back
iif would have invested in any reality share you would have earn 10%
returns in 10 trading days , but that will not be the case now. With
rumours spreading like fire , inflation peaking , crude spiking it will
be very difficult to earn profits.



(RUMOUR : CRUDE : 180$ , INFLATION : 20% , SENSEX :9000-10000)



We advice not to believe in rumours , as these spread like fire and
this causes meltdown in markets. We advice members to rethink about
the their investment and the fundamentals of the company which will
never change in matter of few months. One should have belief in their
investments and hold on their positions.



May be it will be very difficult to digest that their investments is
being vapourated but with patience the cycle of vapour forming into
rain and reaping profits will come sooner or later , none can expect
the returns in short span but with long term point of view the profits
will be sure shot. As of now one can accumulate the stocks and get
the buy price lower rather than selling them in losses.

GOLD 13000 SENSEX 13064......KYAA AAJ GOLD UPAR AAYEGA????

Nifty

3800-3850 NIFTY CASH LEVEL FROM THT WE SEE A SHARLPLY BOUNCE TO 4100 4300

ambani brother in top 5 millionaries (frm billionaries)

BASF SE.(germany)

BASF SE.(germany) said it is lifting the prices for acetylene-based specialty intermediates and carbonates globally and with immediate effect by 10 percent, responding to a rise in raw material costs.

All real estate and consruction stocks should rally now if the recent lows dont break

Shayari

TEJI MAIN INVEST SAB KARE MANDI MAIN KARE NA KOI JO MANDI MAIN SYSTEMATIC INVEST KARE USE HI TEJI MAIN PROFIT HOE

CHIDAMBARAM SAYS TAX-GDP RATIO WILL BE MORE THAN 13% THIS FY *CHIDAMBARAM SAYS INDIA TO START GOODS & SERVICES TAX BY 2010

Hindustan Construction

Hindustan Construction bags Rs 340 Crore BOT Project from NHAI to construct Badrapur elevated six lane highway

Shayari...

STOCKS ke girne ki ahat nhi hoti,NIFTY ke totne ki awaj nhi hoti,agar hota SEBI ko ehsas dard ka to FII ko short karne ki ijaazat na hoti

funnnnnnn

An interesting line written at the back of a biker's shirt: "If u r able 2 see this, plz tell me that my girl frnd has fallen off....!!!

BGR Energy Systems Ltd

BGR Energy Systems Ltd has informed BSE regarding a Press Release dated July 01, 2008 titled "BGR Energy secures 600 MW EPC Contract from Tamil Nadu Electricity Board"

funnnnnn

Santa joined NASA.
After one month the Americans had to change the name from NASA to SATYANASA

market recovering

markets have broken the previous low of 4002. This has firmed the bearish view. India and China are the only beaten down EMs. Rest all other : Hangseng and even Nikkei are doing ok.

All Negetive

all possible negatives have been factored in.. high crude , inflation , low gdp growth and corportate profit groth of 15 % instead of 20 % ... now we see what could be positive .....mulayam givig spport to UPA , n deal taking place , crude may fall due to demand destruction ...mind it 1000s of flights has been grounded due to high ATF prices in west.... govt sanning left can be great as it can take bold descisions like hike in FDI limit in isurance and retail , ... good monsoon which will bring the food prices ... i feel crude will fall its just matter of time ..... demand has been really impacted in western country due to steep hike in prices ....and one imp thing equities has fallen quite a lot which itself will make case for innvestors to shift from commodities o back in equities

Mkt

market will bottom out today

RIL for gas ADAG

amar singh has asked for RIL gas for ADAG group @4.61 $ mmtu for giving its support to UPA for n DEAL ... there is very having negociation is taking place for the price for supporting congress govt.

JET AIRWAYS

JET AIRWAYS FALLS AS MUCH AS 8.6% AFTER REFINERS RAISE PRICES
SPICEJET, DECCAN AVIATION SHARES FALL IN MUMBAI TRADING

JSW Steel

JSW Steel will invest Rs 60 billion to acquire iron ore mines in the American and African continents and expanding its capacity

SejalGlass

Delivery Call - Buy SejalGlass CMP 121 TGT 140 Short Term

News 1-Jul

Headlines for the day

Corporate News Headline
JSW
Steel is planning to invest Rs. 60 bn in the current financial year to
acquire iron ore mines in the American and African continents and
increase existing capacity. (BS)
SBI
would likely have to set aside at least Rs.10 bn to provide for
depreciation in its treasury portfolio as interest rates rise. (ET)
BHEL
bagged a Rs. 20.8 bn turnkey order from the ministry of electricity,
Syria for setting up two units of 200 MW each at the Tishreen thermal
power plant extension. (BS)

Economic and Political Headline
The
surging oil import bill has turned India´s current account balance into
deficit of USD 1.04 bn in the fourth quarter of 2007-08, against USD
4.25 bn surplus a year ago, despite growth in software services exports
and rise in remittances from overseas Indians. (BS)
The
incentives announced last year to help exporters deal with losses due
to a sharp rise of the rupee might be withdrawn soon. (ET)
The UK consumer confidence dropped 5 points to minus 34 in June as house prices fell across the nation. (Bloomberg)

VIPUL BOARD RECOMMENDS 17.50% DIVIDEND
*BOMBAY RAYON BOARD RECOMMENDS 15% DIVIDEND
*BOMBAY RAYON BOARD RECOMMENDS 1.5 RUPEE DIVIDEND
*ORICON ENTERPRISES BOARD RECOMMENDS 10% DIVIDEND
*SHREE PRECOATED FY NET INCOME OF 2.46 BLN RUPEES