Sebi bars 197 FIIs, 342 sub-accounts from market

Market regulator Sebi has barred 197 foreign funds, including those managed by global financial conglomerates like HSBC, Deutsche Bank and Standard Chartered, and 342 sub-accounts from further trading in stock market.

These entities have been barred from fresh trading with immediate effect for non-disclosure of holding structure to the regulator, Sebi said in a circular.

"With effect from October 1, 2010, FIIs (foreign institutional investors) and sub-accounts that have not complied with the above mentioned requirements will not be permitted to take fresh positions in cash and derivatives market while they can retain their current positions or sell off/ unwind," Sebi said.

Stock market barometer Sensex, however, did not respond to Sebi's move and rallied 376 points, or 1.87 per cent, to close at 20,445.04 points. Earlier in April, Sebi had sought detailed information from FIIs on their holding structures and account holders, a move apparently aimed at curbing routing of Indian money back into the country through overseas entities in order to avoid paying taxes.

Sebi had asked the FIIs to disclose by September 30, whether it is a protected cell company, segregated portfolio company or multi-class share vehicle satisfying broad-based criteria set by the market watchdog.

Funds of Citicorp Trustee Company, Standard Chartered, ABN Amro Bank and Bank of New York are among the entities that have been banned from taking fresh positions in the market.

Also sub-accounts of Aberdeen Asset and Abhudhabi Investment Authority were among the 342 non-compliant sub-accounts.

Investing and the 'rule of 72'

As an investor, the dream is to grow the money invested over years. Investors specifically look for opportunities that double their money or even earn more than double.

But usually investors are told the annual rate of return that they can earn on their investment. No broker, no investment advisor ever tells them how many years will it take for them to double their money from a specific investment.

However, there is a simple tool by which you can calculate when this event would take place. If you know the rate of return that you can earn from an investment, you can easily find out how long would it take to double your money.

This tool is called the 'rule of 72'. Very simply, this rule states that:
Number of years to double your money = 72 divided by Rate of return

So if an investment earns a return of 10% per annum, the number of years in which your money would double in it will be 7.2 years (72/10).

This is the 'rule of 72' that you need to understand when you make your investments. Obviously this rule would only favor those who are invested for a longer period of time. The reason for this is that only risk free investments like fixed deposits and bonds can give steady rate of returns year after year. Since these investment options are less risky, the rate of return from them will be lower too.

If we look at stock markets, the returns are much higher. However, so are the risks. No one can predict the exact return that the investment in stocks can give each year. While an investor may earn 30% or more in a good year, in a bad year the same investor may end up losing over 50%. Thus the annual returns are not predictable.

So, does this mean that the 'rule of 72' cannot be applied to stock markets?

No, it can be applied! The idea is not to try and take one year's gain as the rate of return that the stocks can give us each year. Obviously this is not possible. Instead, it would be better to use a longer period of time like 4-5 years to get a more probable rate of return.

For instance, if a stock has generated an average annual return of 20% over the previous 5 years, then you can use this 20% return as a basis to find put when your money would double if you were to invest in this stock. Using Rule 72, it would be 72/20 or 3.6 years. However, you would have to remember that this 20% is not guaranteed. Therefore, 3.6 years is just a rough approximation of the time period. Also, the P/E of the stock also comes into the picture here. It helps if the P/E is not way out of line with respect to historical trends and is expected to remain stable over the next few years. It is only in such cases that the rule of 72 is likely to take us as close to the right answer as possible.

Clearly then, while this rule does help us understand our investment period better, we must remember to apply it carefully. For the correct application of the rule, the rate of return has to be calculated with utmost care. Being over-optimistic or over-pessimistic will just result in losses.

It's time to end Dabba trading

A parallel system of futures trading in commodities, operating outside recognised commodity exchanges, better known by its colloquial epithet Dabba, has been thriving unchecked and is believed to be now generating bigger trading volumes than the regular exchanges.

This is chiefly because curbing this mode of trading is proving difficult under existing rules governing commodity futures. The Forward Markets Commission (FMC), the main regulator of this sector, in its present avatar does not have adequate powers to directly intervene in Dabba trading.

Nor can the commodity exchanges do much to stop it, though the Dabba operators are known to be using the prices discovered at the exchanges to settle their unwritten deals. Couple of indirect measures taken recently by the FMC, such as imposition of a relatively more deterrent penalty regime for erring brokers and barring sub-brokers from commodity trading, seem to aim, in part, at thwarting the Dabba operations, but they have failed to stop the racket.

The FMC has now sought information on inactive members of commodity exchanges in the belief that many of them may be involved in this illegal business. It remains to be seen if a mere weeding out of inactive members would stop the Dabba trade.

Those involved in the Dabba mode of futures trading find it financially attractive as they do not have to put in margin money or pay transaction fee to the exchanges. But they do not have any safeguards against default since the deals are without bona fide contracts.

This apart, since many of the brokers in the Dabba trade often hedge their personal risks through recognised brokers dealing on regular exchanges, the repercussions of defaults in Dabba trading can spill over to the valid futures trading as well.

Perhaps empowering the commodity futures regulator can help. It is, therefore, unfortunate that the process of amending the archaic Forward Contracts Regulation Act, 1952 for providing more teeth to the regulator, initiated two years ago, has not yet been taken to its logical end.

The Bill to amend this statute was not only drafted and formally approved by the Union Cabinet, but was also hurriedly enforced through an Ordinance in 2008. It aimed at converting the FMC into an autonomous, statutory regulator for commodity futures with full powers to act against unlawful practices and introduce futures trading in options, derivatives and intangibles like carbon credits. But, surprisingly, the Ordinance was allowed to lapse.

Unless this Bill is revived and enacted into law, it may be difficult to deal with Dabba trading. An amendment of the law is needed also to achieve the main objective of reintroducing futures trading in commodities.

Options trading in commodities will allow farmers to hedge their risks by giving them the right, but without any obligation, to sell their stocks at a future date. The government must take steps to this end and get the commodities regulator to put a lid on Dabba trading.

Brazil has revolutionised its own farms. Can it do the same for others?

IN A remote corner of Bahia state, in north-eastern Brazil, a vast new farm is springing out of the dry bush. Thirty years ago eucalyptus and pine were planted in this part of the cerrado (Brazil’s savannah). Native shrubs later reclaimed some of it. Now every field tells the story of a transformation. Some have been cut to a litter of tree stumps and scrub; on others, charcoal-makers have moved in to reduce the rootballs to fuel; next, other fields have been levelled and prepared with lime and fertiliser; and some have already been turned into white oceans of cotton. Next season this farm at Jatobá will plant and harvest cotton, soyabeans and maize on 24,000 hectares, 200 times the size of an average farm in Iowa. It will transform a poverty-stricken part of Brazil’s backlands.

Three hundred miles north, in the state of Piauí, the transformation is already complete. Three years ago the Cremaq farm was a failed experiment in growing cashews. Its barns were falling down and the scrub was reasserting its grip. Now the farm—which, like Jatobá, is owned by BrasilAgro, a company that buys and modernises neglected fields—uses radio transmitters to keep track of the weather; runs SAP software; employs 300 people under a gaúcho from southern Brazil; has 200km (124 miles) of new roads criss-crossing the fields; and, at harvest time, resounds to the thunder of lorries which, day and night, carry maize and soya to distant ports. That all this is happening in Piauí—the Timbuktu of Brazil, a remote, somewhat lawless area where the nearest health clinic is half a day’s journey away and most people live off state welfare payments—is nothing short of miraculous.

These two farms on the frontier of Brazilian farming are microcosms of a national change with global implications. In less than 30 years Brazil has turned itself from a food importer into one of the world’s great breadbaskets . It is the first country to have caught up with the traditional “big five” grain exporters (America, Canada, Australia, Argentina and the European Union). It is also the first tropical food-giant; the big five are all temperate producers.

The increase in Brazil’s farm production has been stunning. Between 1996 and 2006 the total value of the country’s crops rose from 23 billion reais ($23 billion) to 108 billion reais, or 365%. Brazil increased its beef exports tenfold in a decade, overtaking Australia as the world’s largest exporter. It has the world’s largest cattle herd after India’s. It is also the world’s largest exporter of poultry, sugar cane and ethanol. Since 1990 its soyabean output has risen from barely 15m tonnes to over 60m. Brazil accounts for about a third of world soyabean exports, second only to America. In 1994 Brazil’s soyabean exports were one-seventh of America’s; now they are six-sevenths. Moreover, Brazil supplies a quarter of the world’s soyabean trade on just 6% of the country’s arable land.

No less astonishingly, Brazil has done all this without much government subsidy. According to the Organisation for Economic Co-operation and Development (OECD), state support accounted for 5.7% of total farm income in Brazil during 2005-07. That compares with 12% in America, 26% for the OECD average and 29% in the European Union. And Brazil has done it without deforesting the Amazon (though that has happened for other reasons). The great expansion of farmland has taken place 1,000km from the jungle.

How did the country manage this astonishing transformation? The answer to that matters not only to Brazil but also to the rest of the world.

An attractive Brazilian model

Between now and 2050 the world’s population will rise from 7 billion to 9 billion. Its income is likely to rise by more than that and the total urban population will roughly double, changing diets as well as overall demand because city dwellers tend to eat more meat. The UN’s Food and Agriculture Organisation (FAO) reckons grain output will have to rise by around half but meat output will have to double by 2050. This will be hard to achieve because, in the past decade, the growth in agricultural yields has stalled and water has become a greater constraint. By one estimate, only 40% of the increase in world grain output now comes from rises in yields and 60% comes from taking more land under cultivation. In the 1960s just a quarter came from more land and three-quarters came from higher yields.

So if you were asked to describe the sort of food producer that will matter most in the next 40 years, you would probably say something like this: one that has boosted output a lot and looks capable of continuing to do so; one with land and water in reserve; one able to sustain a large cattle herd (it does not necessarily have to be efficient, but capable of improvement); one that is productive without massive state subsidies; and maybe one with lots of savannah, since the biggest single agricultural failure in the world during past decades has been tropical Africa, and anything that might help Africans grow more food would be especially valuable. In other words, you would describe Brazil.

Brazil has more spare farmland than any other country. The FAO puts its total potential arable land at over 400m hectares; only 50m is being used. Brazilian official figures put the available land somewhat lower, at 300m hectares. Either way, it is a vast amount. On the FAO’s figures, Brazil has as much spare farmland as the next two countries together (Russia and America). It is often accused of levelling the rainforest to create its farms, but hardly any of this new land lies in Amazonia; most is cerrado.

Brazil also has more water. According to the UN’s World Water Assessment Report of 2009, Brazil has more than 8,000 billion cubic kilometres of renewable water each year, easily more than any other country. Brazil alone (population: 190m) has as much renewable water as the whole of Asia (population: 4 billion). And again, this is not mainly because of the Amazon. Piauí is one of the country’s driest areas but still gets a third more water than America’s corn belt.

Of course, having spare water and spare land is not much good if they are in different places (a problem in much of Africa). But according to BrasilAgro, Brazil has almost as much farmland with more than 975 millimetres of rain each year as the whole of Africa and more than a quarter of all such land in the world.

Since 1996 Brazilian farmers have increased the amount of land under cultivation by a third, mostly in the cerrado. That is quite different from other big farm producers, whose amount of land under the plough has either been flat or (in Europe) falling. And it has increased production by ten times that amount. But the availability of farmland is in fact only a secondary reason for the extraordinary growth in Brazilian agriculture. If you want the primary reason in three words, they are Embrapa, Embrapa, Embrapa.

Meet the world's largest exporter of roses

He is the world's largest exporter of roses. His company has leased 3,000 sq km of land (that is five times bigger than Mumbai, which is 603.4 sq km in size!) in Ethiopia. Here is his amazing story...

After completing his engineering and MBA, it was but natural for Sai Ramakrishna Karuturi to join his family business. A three-year stint and he realised that he wanted to explore new pastures and not stick to his father's business.

After toying with various options he finally settled for floriculture -- he decided to cultivate and export roses.

But cultivating flowers in India is an expensive affair. After a chance meeting with a former colleague he moved to Africa, where the seeds of his fortune were sown.

With 15 per cent of the global market in his grasp, Karuturi, today, is the world's largest exporter of roses.

Three years ago, he added agriculture to his bandwagon. Today, his company Karuturi Global Ltd has 3,000 sq km of agricultural land in Ethiopia (that is 5 times the size of Mumbai!) and 239 hectares of land for rose cultivation.

The company's turnover in 2009 was Rs 650 crore (Rs 6.5 billion).

Here's his story in his own words:

The beginning

Since I come from a business family, entrepreneurship was the only option open to me. My father, though he is 76 years old, still runs many businesses, including power transmission. It was like I was in a business school from age three!

After I completed engineering, I went on to do MBA in the United States. While my father taught me the essence of business, the management degree added a structured dimension to the existing knowledge and taught us all about supply chain and marketing.

I came back and joined the family business and worked with my father from 1990 to 1993.

Starting own enterprise- the flower business

In 1994, I zeroed in on the flower business. I was immensely influenced by management guru Michael Porter's theory of 'Sustainable Competitive Advantage'. I was looking at any business that has sustainable competitive advantage from India into the global market.

I never looked at a business that supplied into India or into a particular region. I wanted to start an enterprise that would sustain itself globally. I was looking at a variety of businesses and the flower business appealed to me the most.

When I visited Israel, I perceived the enormity of the flower businesses, and it left a mark on me. I fell in love with this business, and my passion for it has not dimmed in all these years.

I started with a shoe-string budget of Rs 133,000 which was what I had in my bank account then. Bank loans were easy to get for this sector and many others were also getting into the business with crores of rupees. Then, my father gave me a seed capital of Rs 50 lakh (Rs 5 million). I approached IDBI and they sanctioned Rs 5 crore (Rs 50 million).

I completed the project by 1996. I bought around 28 acres of land in Doddabellapur, 40 km from Bengaluru, and built a couple of green houses.

Mind you, I did not import them. I got my green houses built on the footpaths of Bengaluru, literally. They were designed by the Indian Institute of Science. I bought steel from the market and got it fabricated at a roadside workshop. We made it at a third of the cost at which our competitors were importing it.

When our competitors were importing rose shrubs at Rs 80 per plant, I got them from the local nurseries. They wanted me to import the basic bud wood so that they could make the varieties here in Bengaluru itself. I got them imported from Germany and Holland and it cost me only Rs 5 a plant.

The building block of our success started with frugality and the Indian way of stretching the rupee thin. Our capital and revenue costs were kept very low.

I built this business on very strong foundations of keeping costs low and that has helped us reach where we are today!

Moving to agriculture

Three years ago in 2007, we decided to buy land in Ethiopia for agriculture. Today, we have 3,000 sq km of land which is 5 times the size of Mumbai, and it makes us one of the world's largest landlords! I never thought of becoming a landlord, much less one of the world's largest. That was not a goal at all.

We harvest rice, maize, vegetables, palm oil, and sugarcane. We produce about 5 million tonnes of rice which we export to many countries. That is about one per cent of the world's rice production and 20 per cent of the traded volume in the global market.

We also hope to be a significant player in the maize, sesame, soya and sorghum markets. Palm oil also will be produced in around 100,000 hectares and we will be one of the top five palm oil producing companies.

We have already been rated by UNCTAD (United Nations Conference on Trade and Development) as a member of the 25 largest transnational corporations in agriculture. I want to be ranked among the top 5 and make every Indian proud that one of their own has reached the heights, not in IT but in agriculture.

Future plans

Though horticulture is the main driver of our business, in the next 24 months, agriculture will be twice as big as horticulture.

We expect incremental revenues from agriculture to go past $600-700 million and I don't see horticulture revenues going past $200 million (it is currently $150 million).

My target is to take this company to the billion-dollar club by 2015. So, the next five years' journey is going to be very enjoyable and fulfilling.

Advice to entrepreneurs

My advice to young entrepreneurs is that there is no substitute for hard work and passion. If you are passionate about your work, you can excel in it. You cannot just be passionate and not be hard working; they go hand in hand.

Cadbury India’s share valuation issue heats up

Chocolate and confectionery maker, Cadbury India has rejected the 30% premium recommended by the court-appointed valuer Ernst & Young on share valuations fearing that it might jack up the share prices further upwards.

The company had informed the Bombay High Court about its objection with the 30 per cent premium recommended on share valuation of Rs.1340 suggested by earlier valuators was not acceptable to them. Earlier, valuators Bansi Mehta & Co and SSPA & Co had suggested per share valuation at Rs.1,340.

Cadbury is considering to buyback 2.5% shares owned by minority shareholders, who were not satisfied with the offer made by the company and felt the valuation was low and did not offer value for money at such low rates.

Following to the minority shareholder’s appeal in the Investors Grievances Forum to oppose low valuations, the court appointed Ernst & Young as fresh valuers.

In the latest development the Bombay High Court has asked counsel of both sides to give their submissions on the matter on Wednesday.

According to Investors Grievances Forum (IGF), Cadbury has 8,088 shareholders in the country and abroad. Of them, 800 are minority non promoter shareholders.

Tax exemption allowed in bonds of IFCI, IDFC, LIC and NBFCs

The deduction will be in addition to the deduction of rupees one lakh allowed under sections 80C, 80CCC and 80CCD of the Act.

The Central Government has specified bonds to be issued by (i) Industrial Finance Corporation of India (IFCI); (ii) Life Insurance Corporation of India (LIC); (iii) Infrastructure Development Finance Company Limited (IDFC); and (iv) a Non-Banking Finance Company (NBFC) classified as an infrastructure finance company by the Reserve Bank of India; as “Long-term Infrastructure Bond” for the purpose of section 80CCF of the Income Tax Act, 1961. Investment in these bonds up to Rs20,000 will be eligible for deduction from the total income of the assessee. The deduction will be in addition to the deduction of Rs1 lakh allowed under sections 80C, 80CCC and 80CCD of the Act. The tenure of the Bonds shall be a minimum of 10 years with a lock-in period of five years for an investor. It will be mandatory for the subscriber to furnish permanent account number to the issuer for investment in the bonds.

India’s 9.5% growth to push gold sales

Gold demand in India is all set to soar in the coming months as the International Monetary Fund has predicted a very high 9.5 per cent growth for the country in 2010.

According to IMF, India’s growth will accelerate to about 9.50 per cent in 2010 as robust corporate profits and favourable financing conditions fuel investment, and then settle to 8.50 per cent in 2011.

The 9.5% growth is set to give people more money to buy gold and jewellery. Large domestic demand bases in India, China, and Indonesia, which contribute substantially to Asia’s growth, could also provide the region a cushion in the event of external demand shocks, the IMF said.

This means, India and China will lead the world in growth and will have a bigger say in the market especially in bullion. If Indians and Chinese buy more gold, that will make a huge impact on the gold prices in global level.

As Asia’s strong recovery from the global financial crisis continues, despite renewed tension in global financial markets, world growth is projected at about 4.50 per cent in 2010 and 4.25 per cent in 2011.

Noting that economic activity in Asia has been sustained by continued buoyancy in exports and strong private domestic demand, the IMF has revised gross domestic product (GDP) growth forecasts for the region upward for 2010, from about 7 per cent in the April WEO to about 7.50 per cent.

For 2011, when the inventory cycle will have run its full course and the stimulus is withdrawn in several countries, Asia’s GDP growth is expected to settle to a more moderate but also more sustainable rate of about 6.75 per cent.

In China, given the strong rebound in exports and resilient domestic demand so far this year, the economy is now forecast to grow by 10.50 per cent in 2010, before slowing to about 9.50 per cent in 2011, when further measures are taken to slow credit growth and maintain financial stability, the IMF said.

In a separate Global Financial Stability Report Update, the Fund noted that despite generally improved economic conditions and a long period of healing after the failure of Lehman Brothers, progress toward global financial stability has recently experienced a setback.

India Gold makes historic surge to Rs.19,050

India 24 carat gold hit Rs.19,050 per 10 grams in Delhi Spot markets making the latest historic high fuelled by weak rupee versus dollar and strong demand.

Reports suggested that pure gold hit a new historic high of Rs.19,050 per 10 gram in the Delhi spot market on Tuesday on weak rupee versus dollar and good demand, analysts said.

Rupee was trading weak at Rs.47.1600 per $1 versus Rs.46.36 previously. India, the largest consumer of gold in the world meets most of its demand through imports. A weak rupee makes importing cost of gold costlier, thus driving prices higher.

Tuesday, gold futures on MCX also surged with the near-month contract hitting a new record high of Rs.18,762 per 10 gram.

Most active MCX August contract also hit a contract high of Rs.18,787 per 10 gram. Meanwhile, MCX June contract was trading at Rs.18,722 up 1.67% from the previous close.

Meanwhile, gold stocks on the Bombay Stock Exchange (BSE) witnessed steep rise on Tuesday, June 01, 2010. Leading jewellery makers including, Rajesh Exports Ltd (BOM:531500) gained by over 2% at Rs.87.05 today. Surana Corporation Ltd (BOM:531102) ended the day at Rs.67.90 up by close to 4.5% on the BSE.

How US banks created the credit bubble

Apart from the tiny fraction of the US population that understands economics, everyone was content while the private-sector credit bubble was inflating. The Fed chairman was hailed as a "maestro" for keeping interest rates at artificially low levels and thus ensuring that the prices of most investments -- especially high-risk investments -- remained on upward paths, while politicians of all stripes were happy that the market for home mortgages was the greatest 'beneficiary' of the Fed-sponsored inflation of money and credit.

Actually, politicians didn't leave much to chance, in that regulations were passed to encourage the provision of mortgage-related credit to anyone with a pulse and government-sponsored enterprises (Fannie Mae, etc.) worked tenaciously to increase both the supply of and the demand for mortgages.

The banking industry played its part to the hilt by inventing new ways to expand credit (think: Residential Mortgage-Backed Securities and Collateralised Debt Obligations), but it is important to understand that the banks would not have had an incentive to create these new credit-related products unless there existed huge demand for such products. The demand came from large investors -- hedge, bond and pension funds, for example -- that were desperately searching for yield in a world where yields had been kept artificially low by various central bank and government manipulations.

The main problem with credit bubbles is that they result in a massive transfer of resources to activities that would not be economically viable in the absence of the artificially low interest rates and the monetary inflation. Consequently, although they temporarily create the feeling of prosperity, they deplete real savings and lessen the economy's long-term growth potential.

The recession or depression that inevitably follows the bursting of a credit bubble is caused by the ill-conceived investments made during the bubble rather than by the bursting of the bubble itself. Think of it this way: once the bubble bursts and the supply of new credit is curtailed, a light is suddenly shone upon the terrible mistakes that were made during the bubble.

During the giant credit bubble that ended in 2007, the banking industry made more than its fair share of investing errors and was thus eventually left with enormous holes in its collective balance sheet. Some of the largest US banks should have gone under, which would have resulted in the holders of bank equity losing all of their money and the holders of bank bonds losing most of their money.

It would NOT, however, have resulted in bank depositors losing any of their money or in the cessation of the traditional banking businesses (the taking of deposits and the making of loans). Unfortunately, the government deemed that the banks were "too big to fail", and arranged for hundreds of billions of dollars to be siphoned from the rest of the economy to prevent the large banks from collapsing. Note that the banks were not actually "too big to fail". They should have failed, and the US economy would be in far better shape today if they had.

Further to the above, the banks certainly played a role in creating the current mess, but it was a supporting role. The lead roles were played by the government and the Fed. However, now we have the ridiculous situation of US policy-makers passing legislation that grants themselves greater power and crimps the activities of the banks, with the stated aims of mitigating the risk of another financial crisis and preventing banks from becoming "too big to fail". If they are serious about mitigating the risk of another financial crisis then they should pass legislation that abolishes the Fed and severely crimps the activities of the government.

The attacks on the banks are nothing if not predictable. Throughout history the ends of giant credit bubbles have invariably been followed by periods of recrimination, when politicians looked around for someone other than themselves to blame. In the current case the banking industry is the most logical target because it is blatantly obvious that the large banks have profited handsomely at the expense of taxpayers over the past 18 months. But isn't it bizarre that the finger of blame is being self-righteously pointed at the banks by the very same people who arranged or approved the gargantuan wealth transfer from taxpayers to banks?

Fifty years on: Gujarat PSEs yield gold for investors

The day marks the golden jubilee year of the formation of the state of Gujarat, which was separated from the erstwhile state of Bombay Presidency on the 1st May 1960. Ever since its formation as a separate state, Gujarat has been thriving to be on the forefront of numerous socio-economic platforms, then let it be agriculture, industries, services or civil society. Gujarat has successfully marked its significance not only domestically but internationally too.

Tracking the golden jubilee celebrations of the 50 glorious years of its existence, Gujarat has emerged as the only state in India to have some of the large public sector enterprises listed on the bourses and yielding heavy returns for the investors. As many as six state PSEs are on the public listings and have witnessed significant appreciation of the stock prices over the years.

The six PSEs, namely Gujarat Mineral Development Corporation (BOM:532181) (GMDC), Gujarat State Petronet Ltd (BOM:532702) (GSPL), Gujarat State Fertilizers & Chemicals Ltd (BOM:500690) (GSFC), Gujarat Alkalies & Chemicals Ltd (BOM:530001) (GACL), Gujarat Narmada Valley Fertilizers Company (BOM:500670) (GNFC) and Gujarat Industries Power Company Ltd (BOM:517300) (GIPCL) have emerged as the Navratna companies for the state and the investors.

GMDC, a mining major operates in two segments, mining and power. The company produces lignite, bauxite, calcined bauxite, fluorspar and manganese ore. GMDC is one of the prominent mining and mineral processing companies in India. The company stocks have appreciated by 159.5% in past one year from Rs.54.50 to Rs.137 in the recent trades on the Bombay Stock Exchange (BSE). Meanwhile, the benchmark index, Sensex has surged by 98.5% over past one year to the current level of 17,558 points.

GMDC has been consistently giving dividends to the investors over the years. The company has posted a net profit of Rs.71.19 crore for the quarter ended December 31, 2009 as compared to Rs.74.71 crore for the quarter ended December 31, 2007. Total Income has increased from Rs.262.88 crore for the quarter ended December 31, 2008 to Rs.282.03 crore for the quarter ended December 31, 2009.

Gujarat’s largest caustic chlorine maker, GACL made a history in the state’s chemical sector when the company joined hands with European chemical major, Dow Europe GmbH for setting up an environment-friendly chloromethane plant at Dahej with an investment of Rs.600 crore. The project is underway and expected to be commissioned in early 2011.

In past one year, GACL stocks have gained 57% from Rs.82.70 in the early May 2009 to Rs.117.20 in the latest trades on BSE. The company has a market capitalization of Rs.8.61 billion as on Friday, April 30, 2010.

GSPL, is a pioneer in developing energy transportation infrastructure and connecting natural gas supply basins and LNG terminals to growing markets. The company stocks have yielded robust returns for the investors as the stock price has appreciated by over 138% YoY to Rs.95.30 in recent trades on BSE.

GSPL is a future hope for the industrial growth in Gujarat as the company is developing some of the key industrial infrastructure projects like gas grid development. The company has commissioned various pipeline projects across the state.
Gujarat is once again at an advantage as the state has one of the world’s largest single-stream ammonia-urea fertilizer complexes at GNFC. The company has developed much beyond plant food through a process of horizontal integration. Chemicals/petrochemicals, energy have already been added to the company’s kitty.

GNFC stocks have appreciated by 78.66% over past one year to the current level of Rs.120.15, giving heavy returns to the investors in the long run. The company has the market capitalization of Rs.18.67 billion as on 30th April, 2010.

Another fertilizer and chemicals major, GSFC has been leading fertilizers provider to the agriculture in India. The fertilizer products include urea, ammonium sulphate, di-ammonium phosphate, ammonium phosphate sulphate and traded fertilizer products. GSFC also manufactures some of the speciality chemicals for the industrial purposes, that include caprolactam, nylon-6, nylon filament yarn, nylon chips, melamine and polymer products. Initially, with the equity structure, comprising of 49% of State Government participation and 51% of Public and Financial Institutions, today the Government’s involvement has come down to 38.4%.

The company stock prices have swollen to Rs.259.90 on 30th April 2010 rising 131% over past one year with company’s market capitalization soaring to Rs.20.71 billion.

In order to attain self sufficiency in power generation to provide good quality and uninterrupted power to the state industry and agriculture, Gujarat, over past several years, has been emphasizing on developing larger power generation capacities. GIPCL is a step in this direction. The company, however, has the total generation capacity at 5560 MW at its two power plants located in Vadodara and Mangrol.

Presently, two units of 125 MW SLPP phase II expansion project with expansion of lignite mines is underway and the project is expected to be commissioned in the current fiscal. The state government has consented to allot 500 MW expansion Phase-III to GIPCL. The site selection, environmental clearances and other formalities are in the advance state of progress.
The company stocks gained by 97% over past one year leading the company’s total market capitalization to Rs.17.92 billion as on 30th April 2010. The company stocks ended the last trading session at Rs.118.50 on BSE.

Looking at the robust performance by the state PSEs has proved that despite being public sector enterprises, the companies have flared well in comparison to other PSUs in the country. Surprisingly, no other state has achieved such significant milestone in the field of industrial development.

Gold sale profit to hit $5.1 billion : IMF

The IMF said Sunday it expects to record a profit of $ 5.1 billion from the sale of gold in the financial year ended April 30, 2010.

In a statement, the International Monetary Fund, which sold gold to member countries including India last year, said gold sales is a part of the multilateral lending agency’s new income model, mainly aimed at increasing its resources to lend to low-income countries.

The net income in the 2010 financial year (ended April 30) would include “gold profits estimated at about SDR 3.5 billion ($ 5.1 billion) from part of the limited sale of the fund’s gold,” according to the IMF.

SDR or Special Drawing Rights is an international reserve asset created by the IMF to supplement its member countries’ official reserves. The value of SDR is based on a basket of four key international currencies -- the euro, Japanese yen, pound sterling and US dollar.

In its mid-year review, the IMF had estimated that its profits from gold sales would be worth about SDR 3.25 billion.

This projection has now been raised to SDR 3.5 billion.

The IMF sold 212 metric tons of gold in October-November, 2009. Out of the total, India purchased 200 tonnes at an estimated cost of $ 6.7 billion.

“The gold sales, a central element of the fund’s new income model, will fund an endowment and also increase the fund’s resources for lending to low-income countries...,” the agency said in a recent statement.

Meanwhile, the IMF is expected to report a net operational income of SDR 365 million (about $ 534 million) for financial year 2010, compared to earlier estimates that pegged net operational income at SDR 290 million (about $ 424 million) at the beginning of the year.

“This improved outlook is primarily attributed to higher than expected earnings on the fund’s investment portfolio, which is made up largely of fixed-income securities, and lower net administrative expenditures, in SDR terms, reflecting movements in the US dollar/SDR exchange rate,” the statement noted.

Investment strategies for uncertain times

A situation where earnings growth is rising and projected to continue rising, while share prices are falling, is unusual.

We can see it happening now, and it could continue, given the panic in Europe.

Normally, one would expect long-term investors to be happy at the chance to invest in profitable businesses at lower prices.

But, little about the current situation is normal.

The last time there was a crisis of these dimensions in 2008, it triggered a 15-month bear market that knocked more than 50 per cent off index values.

What is the real benefit?

More pertinently, it retarded Indian GDP growth by at least 1.5 per cent and had an adverse effect on earnings over a two-year period.

Several things may go wrong with the current projections for India if the European situation gets worse.

Indian exports, which are still depressed, could spend a further indefinite period in the doldrums.

Second, Indian businesses looking to tap overseas finance (notably real estate and telecom) will run into reluctance.

Third, domestic consumer spending itself could drop if white-collar increments are frozen.

Lastly, there might be an absolute hard-currency collapse and that would have consequences that are impossible to assess.

So, should Indian investors be buying under the circumstances?

For regular returns

On balance, I'd say yes.

The absolute currency collapse is not very likely to happen and, under other circumstances, the Indian economy will continue to recover gradually, if not at the rates that were optimistically projected before the Greek tragedy.

But, any buying should be very cautious and done in staggered fashion.

Here are some possible sign posts.

Prices could drop or remain depressed for several months.

Hence, slow systematic buying strategies will yield better returns by lowering average price of acquisitions.

Above all, don't commit funds that you'll need to touch for several years. If the index is down another 20 per cent, a year down the line, you want to be able to reduce your average cost of acquisition rather than be forced to sell out to cover other expenses.

Declare the correct investment details

Second, avoid companies that are heavily dependent on exports or on debt infusions.

In the first case, the reasons are obvious - export growth will be slow or negative. Debt will also be very hard to come by and expensive as well. Expansion plans everywhere are likely to go on hold.

Third, look for attractive valuations with regards to the current balance sheet, rather than strong growth prospects.

A low-debt company that is available cheap (in terms of a low current PE, PBV, etc) is less likely to suffer dramatic erosion in valuations.

Fourth, don't expect further stimulus packages from the Government of India - it doesn't have the resources.

Uncertainty in equities, bull phase soon

Global financial markets continue to be driven largely by the sovereign debt issues facing Greece and other European countries but uncertainty clouds the market even as a bull trend is likely soon, according to Bob Doll, Vice Chairman and Chief Equity Strategist for Fundamental Equities at BlackRock, a premier provider of global investment management, risk management and advisory services.

In his weekly commentary, he said that stocks continued to face high levels of volatility last week as a strong rebound in prices early on gave way to renewed weakness by week’s end. Overall, markets did manage to post gains, with the Dow Jones Industrial Average rising 2.3% to 10,620, the S&P 500 Index advancing 2.2% to 1,136 and the Nasdaq Composite gaining 3.6% to end the week at 2,347. Following these gains, stocks moved back into positive territory for the year.

The events in Europe also serve as a reminder that the world appears to be entering a period marked by higher taxes and increased regulation. "In the United States, we expect Congress will act at some point to perpetuate the Bush-era tax cuts for those making under $200,000, but will increase tax rates on higher-income earnings and on capital gains and dividends."

From an equity market perspective, the initial relief over the creation of the rescue plan (which drove markets sharply higher on Monday) eventually gave way to skepticism as investors continued to question European governments’ ability to repay their debt. More broadly, investors have grown increasingly concerned about the potential for contagion, fearing the credit issues could affect other markets. At this point, it is difficult to say whether the rescue program will result in a recovery
in confidence levels, but the scope and size of the plans are encouraging, Bob Doll said in his commentary.

The plans do not address the underlying fundamental issues facing Greece and other countries, which will still have some difficult decisions to make in terms of managing their balance sheets. In the short term, however, the immediate liquidity risks should be contained. On balance, it appears investors are awaiting more details and markets still need to be convinced that the plans enacted by the European Central Bank and other policymakers will work.

Looking ahead, there appear to be three possible directions that the European debt crisis could take. The first, and most pessimistic, would be something similar to what happened in late 2008, when the global financial system entered a free fall after the collapse of Lehman Brothers. We think such a scenario is unlikely, as there are several important differences between the credit crisis of 2008 and the events of today. Namely, credit risks involving governments are significantly more transparent
than those surrounding subprime loans and collateralized debt obligations were a couple of years ago; the broader global economy is firmly in recovery mode; inflation levels are low; the banking system as a whole is in better shape; and global policymakers are highly attuned to the downside risks. The second scenario would be a longer-term continuation of a volatile trading range as the competing crosswinds of economic growth and increased liquidity battle against deteriorating credit
conditions and widespread uncertainty. This has been the case for the past several weeks, and this backdrop will continue.

The third scenario would be a victory by the bullish forces that could result in a renewed rally for risk assets. "We do expect to see this result at some point—such was the case after the January/ February downturn. The fundamental uncertainty surrounding credit issues, however, could make the current trading range persist for longer.

One of the spillover effects of the European sovereign debt crisis has been the appreciation of the US dollar versus the euro. The rising dollar has been a source of concern for some investors, since a stronger dollar could have negative implications for US corporate profits. While the trade-weighted value of the dollar is still below its average level of the past several years, the weaker euro could present a risk for US stocks, as could weaker levels of European economic growth.

Another question prompted by the current crisis is what impact all of this will have on the Federal Reserve’s decisions regarding US interest rates. "We had expected that, with the resumption of jobs growth, the Fed would soon signal that it was nearing a change in its forecast, paving the way for an increase in interest rates by the end of the year. That forecast is now looking more uncertain, implying that the Fed is likely to keep rates on hold for a bit longer. An extended period of excess global
liquidity should provide a tailwind for stocks, commodities and other risk assets," Bob Doll said in his commentary.

"On a relative basis, US markets have benefited from the uncertainty, as investors have continued to view the United States as a higher-quality haven for their assets. We expect that this trend will continue, which makes US stocks more attractive than those of other developed markets."

Highlights of RBI's FY11 Annual Policy Statement

* Hikes reverse repo, repo rate, CRR by 25bps each
* Reverse repo, repo rate hikes with immediate effect
* CRR hike effective from Apr 24
* CRR hike to impound 125 bln rupees from banks
* FY11 GDP growth projection at 8.0% with upside bias
* March end inflation projection at 5.5%
* FY11 banks' credit growth projection at 20.0%
* FY11 banks' deposit growth projection at 18.0%
* FY11 money supply growth projection at 17.0%
.
STANCE
* Hike in policy rates, CRR to help contain inflation
* Hike in policy rates, CRR to anchor inflationary expectations
* Measures to sustain recovery process
* Govt borrow needs, private credit demand will be met
* Hikes to align policy tools with evolving state of econ
* To closely monitor macro events, prices; take warranted steps
* Econ firmly on recovery path, industrial growth broad based
* India economy resilient, recovery consolidating
* FY11 econ growth to be higher, more broad-based vs FY10
* Lower policy rates can complicate inflation outlook
* Lower policy rates also impair inflationary expectations
* Despite 25bps hike in rates, real policy rates still negative
* Need to normalise policy rates in calibrated manner
* Inflationary pressures "accentuated" in recent period
* Inflation getting increasingly generalised
* Capacity constraints to re-emerge as econ growth rises
* Must ensure demand-side inflation does not become entrenched
* FY11 fresh govt bond issuances 36.3% higher vs FY10
* FY11 fresh govt bond issuances "a dilemma"
* Policy considerations demands liquidity be curbed
* Govt borrow needs supportive liquidity conditions
* Need to absorb liquidity without hurting govt borrow plan
* To respond swiftly, effectively to inflationary expectation
* To actively manage liquidity, ensure private credit demand is met
More

NIA:IMF SDRs are inflationary, buy silver-gold now

The International Monetary Fund (IMF) has issued new Special Drawing Rights worth approximately $300 bn which shows that inflation is a major problem the worldover, according to National Inflation Association (NIA). Perhaps, thisis the right time to buy gold and silver. NIA said that SDR's may not become the new world reserve currency. In a set of 10 questions and answers on precious metals, inflation and crude oil, it addresses key issues of interest to US and global investors.

1) How much over spot is a good price for silver and gold?
A good price for a 1 oz silver coin like an American Eagle or Canadian Maple Leaf is 12% over spot, and a good price for a 1 oz silver bar is 6% over spot. For gold, a good price for a 1 oz gold coin like an American Eagle or Canadian Maple Leaf is 4% over spot, and a good price for a 1 oz gold bar is 2% over spot. The larger premium for silver compared to gold indicates a shortage in the physical silver market.

2) Now that GATA has blown the doors off the LBMA ponzi scheme, and we know there is only 1 oz of silver for every 100 oz represented on paper, why hasn't there been a panic to dump paper and go into physical? What will it take to trigger a short squeeze?

We don't believe there is only 1 oz of physical silver for every 100 oz represented on paper. Most likely, there is 1 to 3 times more paper silver than physical silver. This is still a major problem that will ultimately result in a major silver shortage and short squeeze, once a large number of COMEX holders begin to demand physical delivery of silver. This is a topic that we will be covering extensively in our new documentary coming out next month.

3) If the silver market is controlled by JP Morgan and others, how does the little guy stand a chance of making money?
The manipulation by JP Morgan through naked short selling is providing an opportunity for normal everyday investors to purchase silver at dirt-cheap prices. Without JP Morgan's naked short selling, it's possible silver would already be well above $30 per ounce right now.

Remember, JP Morgan is not manipulating silver up, they are manipulating it down and the manipulation can't last forever. When investors around the globe call for physical delivery of their silver, there will be a shortage of physical silver and JP Morgan will be forced to cover their naked short position, causing silver prices to explode to the upside.

NIA believes silver will eventually see the biggest short squeeze in the history of all commodities.

4) What is the best way to respond to the overused and baseless argument that we needed the stimulus package or else the U.S. economy would've crashed and we would've had another Great Depression?

The stimulus package didn't stimulate the economy but it actually stifled it because we needed to go deeper into debt and borrow the money that was used on projects that added no production to our economy. The jobs that were created were temporary but we still owe the debt. We will need to print the money to pay the debt back, which will ultimately lead to hyperinflation.

Our country does not have access to unlimited financial resources. The money that we borrowed for the stimulus package took away from the money that could've been borrowed by a small business, which could've invested the money into building a factory that would've produced goods and generated real wealth for decades to come.

Our economy needed to enter a recession in order to clean out the toxic assets and imbalances. Today, all of the toxic assets still exist on the balance sheet of the Federal Reserve and the economic imbalances that caused the last crisis have grown larger than ever before.

Instead of going through a steep recession, we will now be forced to eventually endure a hyperinflationary Great Depression. Remember, when there is a boom created by cheap credit, there must eventually be a bust. There is no way around it. All the government has done is push the real collapse down the road while making the eventual outcome a lot more devastating.

5) Why do you not like investing into Real Estate? Isn't it smart to buy Real Estate that is cash-flow positive and then use that cash-flow to purchase precious metals?

Real Estate that is cash-flow positive today, might not be so in the future. In our opinion, it will be impossible for landlords to increase their rents at the same rate as inflation. If you are a landlord, your real cash-flow will diminish over time.

During periods of high inflation, preserving ones purchasing power becomes a lot more important than generating cash-flow. We believe Real Estate will continue to decrease in real value because Real Estate is not very liquid and prices are still at artificially propped up levels. Those who own Real Estate will do poorly compared to those who own precious metals.

6) Do you believe the discovery of many large oil shale deposits in the U.S. will drive down oil prices?

There are several major shale deposits in the U.S. that contain large amounts of oil and natural gas. The cost of extracting oil from these formations is very high and we doubt it will have much of a damper on oil prices. Although it is cheaper and easier to extract natural gas from these formations, we believe the existence of these shale deposits is already factored into our current low natural gas prices. We expect to see many vehicles convert to run off of natural gas in the future, which could lessen the demand for oil, but it will take many years for these conversions to take place. We believe $100+ oil is inevitable due to increasing demand from China and India, and the Federal Reserve's monetary inflation.

7) Do you believe Special Drawing Rights (SDRs) being issued by the IMF will accelerate the U.S. into hyperinflation? Are SDRs being setup to become the new world reserve currency?

From 1970 to 1981 the IMF issued $30 billion worth of SDRs, and gold and silver prices soared to record real highs. The IMF recently issued approximately $300 billion worth of new SDRs. Certainly, this shows that inflation is a major problem around the world and now is the time to own gold and silver.

We don't believe SDRs are being setup to become a new world reserve currency. It would be much more beneficial to China for them to allow their own currency to become the reserve currency.

8) I am considering a career in the military. With the coming collapse, will the military offer me and my family any type of security or will the hyperinflation affect the military as well?

We don't think the U.S. government will be able to afford the military it has today for much longer. Our military needs to be scaled back immediately if we want to prevent hyperinflation. During hyperinflation, the army will most likely be used mainly to protect government officials. Those who are left in the military will demand to be paid in gold, until our gold reserves are completely depleted.

9) I work at Disney Orlando as a server. I make about $300 a day on average. My seniority is rather high. What will happen to my job when the economy collapses?

We can't picture Disney World in Orlando ever closing its doors and going out of business. Certainly, your wages will decline in purchasing power and workers will demand higher nominal wages. Disney will have to increase admission fees and if visitors can't afford them, Disney will layoff employees. Hopefully your level of seniority will ensure your job safety.

The good thing about Disney World is many Asian visitors and foreign tourists come each year. We might see the percentage of foreign visitors increase in the years to come and make up a larger percentage of Disney World's theme park revenues.

10) If the government imposes a value added tax, how will that affect inflation?

We believe Americans are already taxed to the hilt and any additional taxes will have the effect of reducing tax revenues. We need to move the discussion in America away from taxes and towards inflation. It is impossible to fund our current level of government spending and pay back our national debt through taxation. It will all be paid through massive monetary inflation.

India cuts US debt holdings by over $1 bn in Feb

India slashed its holdings of American debt by a little over USD 1 billion in February while China, which is locked in a currency row with the US, trimmed the holdings by USD 11.5 billion during the same period.

According to the US Treasury Department, India has slashed its holdings to USD 31.6 billion in February, while it was at USD 32.7 billion in January.

China, which is also the largest holder of US Treasury bonds, has cut its holdings to USD 877.5 billion in February, one of the lowest levels in nearly nine months.

In January, China's holdings stood at USD 889 billion. Both the US and China are locked in a row over the issue of revaluation of Chinese currency yuan. In recent months, American authorities have been stepping up pressure on the latter to revalue yuan.

Going by official statistics, China has been trimming its holdings continuously since October last year, when the same was at USD 938.3 billion.

Meanwhile, India's holdings have come down by more than USD 10 billion since June last year. At that time, India held Treasury bonds worth USD 42.2 billion.

As per the Treasury data, Japan held bonds worth USD 768.5 billion, making it the second largest holder of American debt after China.

Among the BRIC (Brazil, Russia, India and China) nations, the second largest holder of American debt is Brazil, followed by Russia and India.

As in February, Brazil held Treasury bonds to the tune of USD 170.8 billion, while Russia held American debt worth USD 120.2 billion.

The US economy grew 5.6 per cent in the last three months of 2009, shrugging off the adverse impact of the financial meltdown.

Sugar production: This season, it is under-estimation

If 2008-09 was a year of the Centre and the industry both overestimating the country's sugar output, the 2009-10 season is turning out to be just the other way round.

At the start of the 2008-09 sugar season (October-September), the Centre reckoned production at 220 lakh tonnes (lt), assuming Uttar Pradesh (UP) to contribute 70 lt and Maharashtra 61 lt. As the season progressed, these were pared, first to 205 lt, 62 lt and 57 lt and then to 188 lt, 59 lt and 51 lt, respectively. Even right up to August, the Centre maintained production to be in the 150-155 lt range. However, when the season ended, the final all-India number came to 145.38 lt, while being 40.64 lt for UP and 45.78 lt for Maharashtra. And predictably enough, the Union Food and Agriculture Minister, Mr Sharad Pawar, laid the blame for this divergence of nearly 75 lt between initial and final estimates on the industry.

At the Indian Sugar Mills Association's annual meeting on December 22, Mr Pawar even threatened to penalise factories for “late and incorrect reporting” of their production figures to the Sugar Directorate. This time though, it is quite the opposite. On November 6, the Food Ministry convened a meeting of State Cane Commissioners and based on their inputs, production for the 2009-10 season was pegged at 146.14 lt. This included 47 lt from Maharashtra and 39.60 lt from UP.

While the Centre stuck to this internal estimate (while publicly proclaiming a 160 lt figure), the industry put it a tad lower at 140-145 lt. By January, the consensus within the trade was a production of below 140 lt, with some even venturing a sub-130 lt number. All that was enough for sugar prices to hit the stratosphere, as ex-factory realisations surged by about Rs 10/kg between Christmas and mid-January. But since then, prices are back to – actually lower than – where they were and, worse, seemingly headed further down. The trigger, again, is production, which is now seen to top 170 lt (according to Mr Pawar), with the National Federation of Cooperative Sugar Factories expecting it even higher at 180-185 lt. The way output estimates have been revised upwards – and may well be revised further – is better captured by looking at just Maharashtra and UP.

Maharashtra mills were originally anticipated to crush just 410 lt cane, which, on an average 11.5 per cent recovery, would have yielded slightly over 47 lt of sugar. But as on March 31, crushing for the ongoing season had touched 531.11 lt, with corresponding sugar production of 60.81 lt. The latest projection of total crushing and production for the season are 560 lt and 65 lt, respectively.

Likewise with UP which looks set to produce 50-52 lt, against the initial sub-40 lt estimate. In both States, it appears mills simply did not account for the possibility of higher cane yields due to farmers taking extra interest in their crop this time. “We failed to gauge the grower's enthusiasm for applying more fertilisers and other inputs in view of remunerative cane prices, just as we last time underestimated his anger and indifference on not being paid adequately and in time”, a UP miller admitted.

Gold ETFs: prudent investment or paper dream?

Almost all market and bullion analysts in the recent years harped on a new investment option — the Gold Exchange-Traded Funds (ETFs). Till a decade ago, there were no easy options to invest in gold like the equities market. Realising this, innovative people brought out the gold ETFs to make gold investment easy for investors. The development of the gold ETF market in 2003 changed the way people invested in bullion.

Now, gold ETFs are an efficient way to invest in gold without dealing with the troubles of holding the physical metal.

Gold ETFs are traded just like shares of stock. You can buy and sell a gold ETF just as easily as shares of any company. And they trade on major stock exchanges including New York, London, and Sydney. However, some gold ETFs buy and hold the physical bullion, while others invest in futures contracts.

But when the gold ETFs came into the market, nobody anticipated a fraud will spoil the image of ETFs within 10 years of its existence. So, last week, when the Commodity Futures Trading Commission (CFTC) heard a case regarding manipulations in bullion market by gold cartels, the gold ETF scam hit the investors like a bolt from the blue.

Now, the gold ETFs’ image is at stake. Soon, investors are set to question the credibility of the gold ETFs. The reason is the facts emerged during the CFTC hearing.

The whistle-blower in this biggest gold fraud was Andrew Maguire, an experienced precious metal trader in London. In an riveting interview (which is available on the internet all over the world) with GATA director, Adrian Douglas, Maguire describes a new dynamic impacting gold. The fact is that, there is a huge short position in the market.

The CFTC hearing confirmed what GATA has been saying all along, that the gold market is being manipulated. And, how? The gold cartel has accumulated a huge short position and the huge short positions are ‘naked’, which means these positions are not hedged. There is 100-times more paper-gold outstanding than physical gold.

So, if you are buying ETFs, be sure that there is no gold guarantee for your piece of paper which offers you the ownership of some specific quantity of the yellow metal. In reality, it is just a piece of paper which you bought paying huge sums.

Recently, the World Gold Council reported that the world’s total gold ETF market grew 85% relative to 2008.

During the hearing Adrian Douglas of GATA said: I would just like to make a comment. We are talking about the futures market hedging the physical market. But if we look at the physical market, the LBMA, it trades 20 million ozs of gold per day on a net basis which is 22 billion dollars. That’s 5.4 Trillion dollars per year. That is half the size of the US economy. If you take the gross amount it is about one and a half times the US economy; that is not trading 100% backed metal; it’s trading on a fractional reserve basis. And you can tell that from the LBMA’s website because they trade in “unallocated” accounts. And if you look at their definition of an “unallocated account” they say that you are an “unsecured creditor”. Well, if it’s “unallocated” and you buy one hundred tonnes of gold even if you don’t have the serial numbers you should still have one hundred tonnes of gold, so how can you be an unsecured creditor? Well, that’s because its fractional reserve accounting, and you can’t trade that much gold, it doesn’t exist in the world. So the people who are hedging these positions on the LBMA, it’s essentially paper hedging paper.

Bart Chilton uses the expression “Stop the Ponzimonium” and this is a Ponzi Scheme. Because gold is a unique commodity and people have mentioned this, it is left in the vaults and it is not consumed. So this means that most people trust the bullion banks to hold their gold and they trade it on a ledger entry. So one of the issues we have got to address here is the size of the LBMA and the OTC markets because of the positions which are supposedly backing these positions which are hedges, but it is essentially paper backing paper.

So the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the real physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history. This is, of course, why the Central Banks lease their gold or sell it outright to the bullion banks when they are squeezed by high demand for real physical gold that can not be met from their own stocks.

Gold industry in India to cross $26 billion by 2012

Gold is driving the gems and jewellery export orders from India. According to the Investment Commission of India, exports are likely to grow to US$ 25 billion by 2012. Following are some of the India government steps to boost gold trade in the country.

India Government Initiatives
The Indian government has provided an impetus to the booming gems and jewellery industry with favourable foreign trade policies:

• 100 per cent foreign direct investment (FDI) in gems and jewellery through the automatic route is allowed

• The government has lowered import duty on platinum and has exempted rough coloured precious gem stones from customs duty

• Rough, semi-precious stones are also exempt from import duty

• Duty-free import of consumables for metals other than gold and platinum up to 2 per cent of freight on board (f.o.b) value of exports

• Duty-free import entitlement for rejected jewellery up to 2 per cent of f.o.b value of exports

• Import of gold of 18 carat and above under the replenishment scheme

• Setting up of SEZs and gems and jewellery parks to promote investment in the sector

• In May 2007, the government abolished import duty on polished diamonds

• The government has raised the limit value of jewellery parcels for export through foreign post office from US$ 50,000 to US$ 75,000 and the time period for re-import of branded jewellery remaining unsold has been extended from 180 days to 365 days

• The export of coloured gemstones on a consignment basis has been allowed. The government has announced a series of measures to help gems and jewellery exports in the Foreign Trade Policy 2009-14.

• It has been decided to neutralise duty incidence on gold jewellery exports, to allow duty drawback on such exports

• In an endeavour to make India an international diamond trading hub, it has been planned to establish "Diamond Bourses"

• A new facility to allow import of cut and polished diamonds on a consignment basis for the purpose of grading/certification purposes, has been introduced

• To promote export of gems and jewellery products, the value limits of personal carriage have been increased from US$ 2 million to US$ 5 million in case of participation in overseas exhibitions. The limit in case of personal carriage, as samples, for export promotion tours, has been increased from US$ 0.1 million to US$ 1 million.

The Road Ahead
• The Indian gems and jewellery sector is excepted to cross US$ 26 billion by 2012, driven by availability of a huge base of skilled labour and improving lifestyle, according to a new report called "Indian Gems and Jewellery Market - Future Prospects to 2011", by RNCOS, published in September 2009.

• According to the same report, the Indian gems and jewellery sector is expected to grow at a compound annual growth rate (CAGR) of around 14 per cent from 2009 to 2012.

• According to industry experts the consumption of diamond jewellery in India is expected to touch US$ 6.41 billion in 2012.

• State-run National Mining Development Corp (NMDC) plans to produce close to 100,000 carats of diamonds from the Panna diamond mines in Madhya Pradesh by 2010-11.

How global warming can lead to increased violence in human beings

A new research has shown that as the earth's average temperature rises, so does human "heat" in the form of violent tendencies, which links global warming with increased violence in human beings.

Using US government data on average yearly temperatures and the number of violent crimes between 1950 and 2008, the researchers estimate that if the annual average temperature in the US increases by 4.4 degree Celsius, the yearly murder and assault rate will increase by 34 per 100,000 people - or 100,000 more per year in a population of 305 million.

While the global warming science has recently come under fire, the main premise behind the Iowa State researchers' research paper is irrefutable.

"It is very well researched and what I call the 'heat hypothesis'," Anderson said.

"When people get hot, they behave more aggressively. There's nothing new there and we're all finding the same thing. But of the three ways that global warming is going to increase aggression and violence, that's probably the one that's going to have the most direct impact - even on developed, wealthy countries, because they have warm regions too," he added.

The ISU researchers analyzed existing research - including an update on a study Anderson authored in 1997 - on the effects of rising temperature on aggression and risk factors for delinquency and criminal behavior.

In addition to the "heat hypothesis," they report that rising global temperatures also increases known risk factors for the development of aggression in violence-prone individuals, such as increasing poverty, growing up amid scarce resources, malnutrition and food insecurity.

They contended that one of the most catastrophic effects of climate change will be food availability, producing more violence-prone individuals in the process.

"While there is some link between temperature and aggression, really the effects (of climate change) are going to be more indirect if those temperature changes affect the amount of food we can produce, coupled with population growth," said Matt DeLisi, an associate professor of sociology and director of ISU's criminal justice program.

"Then where the real damage will be done is malnutrition, because that sets in motion these other developments (risk factors) that then lead to crime," he added.

The researchers cited ecomigration, civil unrest, genocide and war as the third way global warming is going to increase violence.

They report research finding that rapid climate change can lead to changes in the availability of food, water, shelter and other necessities of life.

Such shortages can also lead to civil war and unrest, migration to adjacent regions and conflict with people who already live in that region, and even to genocide and war. (ANI)

Why gold is a commodity and a currency

1. Is gold trading as a commodity, a currency, or both?

2. I believe the answer is: Mainly as a currency, but the fact that aprox 70% of mined gold usually goes into jewellery cannot be ignored.

3. Another fact is that gold seasonals dictate a possible intermediate top in late December. This time it topped in early December.

4. The gold price has been “ruled” by the massive head and shoulders pattern on the weekly chart (Gold Weekly Chart), so the usual late sept/early oct hard sell off not occurring is most likely a function of the action of two factors: a. The hedge fund momentum buying, trying to milk the technical chart pattern. b. The action of Barrick acting in the comex open market buying futures contracts to cover off their hedge position.

5. Theme “numero uno” for me continues to be: Hold the amount of gold you can be comfortable with should price either decline to $700 or rise to $1400. If you bail on current holdings if gold moved towards $700 or started buying crazily as it rallied towards $1400, you likely are positioned very very badly, here and now. Your gold holdings become a crapshoot, rather than an ultra solid investment in the world’s lowest risk market.

6. If gold were to leap $50 in the next second, you should have an overall feeling of comfort regarding your core positioning, and the same should be true should it receive a $50 spanking. How you feel has a lot to do with how you act. Really work hard at getting your holdings into your “comfort zone”. You can then “let that gold flying fish” get away if price spurts suddenly, and if it tanks suddenly you don’t wonder about hitting the sell button. It takes more work and patience than many think to get to that “sweet spot” but it’s a CRITICAL task if you want to do not just well in the market, but have a balanced life.

7. Sammy the bull notes that many major mkts often make significant lows in the mid march timeframe. That’s only a week away from today’s date.

8. I would add that gold as I write this has dropped $30 from the recent highs at $1145, to $1115 this morning, the fact is that $30 of weakness must be bought.

9. How much to buy? If you look at what I term the Liquidity Flows reports, the COT reports, you will see that the banksters typically add in the range of 5000 contracts to an existing 150,000 contracts position. That equates to a 3% addition to their position. Sometimes, they add more into $30 of price weakness, sometimes less, but it isn’t a double of their position, and it isn’t none. They are responding to price calmly, rationally, and modestly.

10. If you look at how most investors operate in the market, they might buy a position in a stock at price A, then do a 2nd buy at lower price B, then maybe a 3rd but more uncomfortable buy at a lower price C. Now they are players in the market at 3 price points. Unless you are a professional trader, I’ll bet you spend 99% of your time at prices below 2 of your 3 price entry points, and most likely below all 3. Most investors don’t even use 3 buy points, they use just one!

11. The head and shoulders pattern on the gold weekly chart has been shown a zillion times in the gold community. The problem has been when it’s time to take action, few have.

12. The breakout upside was viewed as potentially false. That cost them $200 an ounce. Then came the “demands” for a pullback exactly to the neckline. What’s the difference between buying 1050 and 1020, or 980 for that matter? I don’t see any major difference.

13. Sadly, at 1045 the banksters went to work and gold investors put on a classic lemmings show, with their “the banksters say gold is a bubble, so it is, sell everything now!” clown act. And the banksters went on the buy.

14. Gold soared a hundred dollars an ounce from 1045. We’ve retraced about a third of that as of this morning. Once again, gold investors are losing their focus, losing sight of what is happening on the weekly gold chart, the chart that continues to literally rule gold’s price here and now.

15. Price has corrected in a clear parallel down channel and last week closed upside. If you look closely at the red supply line I’ve drawn in, you can see price could correct to anywhere around the 1100-1115 area and create a classic pullback from that breakout.

16. Aggressive options traders should consider using weakness over the next week to take action on gold with longside bets.

17. Seasonally, the upmove that occurs classically from the mid march area (but don’t bet big money that price must bottom in mid march, this is the market and anything and everything is possible) is followed by a significant but choppy upmove.

18. Price can then decline to a lower low or least a significant low.19. Again, given the fact that gold is being ruled technically by the head and shoulders weekly chart bull continuation pattern, price declines are likely to be reasonably shallow.

20. The technical indicators on both the gold bullion weekly chart and the gold stocks GDX weekly chart are showing the market attempting to make a bottom. The daily charts show a short term top. Here’s a look at the GDX. GDX Weekly

21. Notice in particular the short term 4,8,9 time series of MACD has given a buy signal. Usually, that is followed by the other series, including the 12,26, 9 flagship.

22. Looking at the daily chart GDX Daily Chart you can see the exact opposite picture in the technicals, with sell signals being generated on the lead MACD series.

23. What if price doesn’t stop after a shallow sell off, but instead blows back down into the parallel channel and starts taking out lows? After all, this is the gold market, and the charts, in the final analysis, are just lines in the sand drawn at whim by the banksters dangling the funds around on puppet strings to buy and sell to create the charts with their actions. Well, first off, we’re already more than blessed with how this massive head and shoulders has continued to play out in a picture-perfect action of price.

24. So if price were to do something “anti-pattern” that shouldn’t be taken out of context, so long as price has not violated the right shoulder low, which is at $860. Secondly, even if price did violate 860, I’m a gold buyer of that weakness. There is nothing I see in the current sell-off to indicate anything other than the usual over-leveraged fundsters on the bail at the hands of the banksters who I’ll give you 99.999% odds are on the buy today with their largest buys right into today’s lows. The question is, what are you doing in the gold market into today’s lows?

Courtesy: www.gracelandupdates.com

Bio-fuels: Road not taken!

Even as the ministry of new and renewable energy (MNRE) has set its eyes to develop coordinated R&D projects for second generation bio-fuels, the ground reality of the nascent industry of bio-fuel suggests that more of the encouragement for private investment is required in order to meet the desired goals of creating alternative energy sources.

In a recent statement, the union minister for new and renewable energy, Dr. Farooq Abdullah had mentioned that the government has initiated steps to expedite promotion and development of bio-fuels such as bio-ethanol and bio-diesel.

The government is said to be considering a regulation which would make it mandatory for all oil companies to sell diesel with 20% blend of bio-diesel for retail market by the year 2017. But looking at the pace of development on the R&D and investment front, only a marginal part of the fixed percentage seems to be achievable. The blame goes to sluggish approach of the government to attract required investments for projects.

“Our diesel demand is growing rapidly and considering this exponential growth in demand over the years, there will be a need of about 16 million metric tonnes of bio-diesel in 2017 to meet the prescribed regulation of 20% blending with normal diesel. But looking at the current scenario of investments happening in the industry, it would be very difficult to meet the set targets,” said CS Jadhav, Director, Marketing Nandan Bio-Matrix Ltd – a company that is currently operating into bio-diesel manufacturing from Jatropha cultivation. “Looking at the current pace of capacity generation, it seems that we would hardly be able to meet the blending requirements of even 3.5%,” told Jadhav in an interaction with Commodity Online.

Nandan Bio-Matrix is one of its kind cases in India, who has a vertically integrated value chain. The company operates through seed to oil integration. The company has tied-up with the Bharat Petroleum Corporation Ltd (BPCL) for bio-diesel refining and marketing in Uttar Pradesh. The project is believed to start yielding output in next 1-2 years.

The company has joined hands with Gujarat-based group to set up a joint venture entity, Vitale Nandan, which operates in Rajasthan and Orissa besides its home state, Gujarat. “Gujarat has been on the forefront for giving land for jatropha cultivation. We are planning to set up plantation on about 20,000 hectares of land. But initially we will start off with about 4,000- 5,000 hectares of land,” said Rituraj Pathak, director of the company. The company has already procured the land and will soon start commercial cultivation on it.

“We have successfully completed our field trials, which was done in association with Dantiwada Agriculture University in Gujarat. Now we are looking to expand our plantation in states like Rajasthan and Orissa. We are expecting bio-diesel production of about 2,000-5,000 gallons in next 3-5 years, with our revenues rising ten folds during this time.” Pathak mentioned.

Industry experts have expressed their apprehensions about the success of government initiatives to address the need of the growing industry. On one hand, it has set target of 2017 and on the other presently, there are only a few organized players to cater to the vast market in India.

The Minister’s statement to develop coordinated R&D projects on second generation bio-fuels such as production of ethanol from agricultural wastes / residues and bio-diesel from algae, barely mentions the directions for investors. He said in the Lok Sabha, “The National Policy on Bio-fuels is aimed at accelerated promotion and development of bio-fuels such as bio-ethanol and bio-diesel.”

The oil marketing companies (OMCs) have been directed to sell five per cent ethanol blended petrol in the entire country except North-Eastern States, Jammu & Kasmir, Andaman & Nicobar Islands and Lakshdweep. However, Bio-diesel is currently not being marketed commercially for blending with diesel as the bio-diesel industry is still at nascent stage of development. Hence, the government is emphasizing more on extensive R&D through different Scientific Agencies on feedstock development, conversion processes and production of ethanol mainly from sugarcane molasses and bio-diesel from Jatropha.

Experts are of the opinion that right mix of policy backed by incentives, will prove a booster for the industry. Many private equity firms are waiting to offload funds for the future blue-chip ventures. Tatas and Reliance have already expressed their readiness to park their funds in this promising sector. Australian renewable energy major, Mission Biofuels Ltd is also considering venturing into this field.

Courtesy :
Vora is a Special Correspondent, Commodity Online News Service

Central Banks bet on gold reserves

In 2009, almost all central banks showed an increased love for gold. In the recent past, Russia’s central bank addded 800,000 ounces of gold to its reserves last month, increasing its holdings of the metal to $22.4 billion.

The bank’s gold reserves climbed to 20.5 million ounces from 19.7 million the previous month. And, India’s central bank also purchased gold in 2009 to increase its foreign reserves.

With the Reserve Bank of India (RBI) purchasing 200 tonne gold in two phases from the International Monetary Fund (IMF) in November 2009, the central bank’s gold holdings have increased from 357.75 to 557.75 tonne.

RBI held about 357.75 tonne, forming about 3.7% of the total foreign exchange reserves in value terms as at the end of September 2009. Out of this, 65.49 tonne is being held abroad since 1991 in deposits or safe custody with the Bank of England and the Bank for International Settlements.

Currently, RBI holds gold reserves worth $18.3 billion which is 6.33% of the country’s total forex reserve. Gold reserves held by India stood at $10.32 billion as on September 2009. Interestingly, India’s gold reserves have been rising steadily from $9.2 billion in May 2008 and touched $9.6 billion in May 2009, after falling to $8.57 billion in September 2008.

The country’s total foreign exchange reserves stood at $284.3 billion.

Talking about investment pattern for foreign currency assets which were worth $264.4 billion at the end of September 2009, RBI said $148 billion was invested in securities, $111.3 billion was deposited with other central banks, BIS and the IMF and $5.1 billion was parked in the form of deposits with foreign commercial banks placed with the external asset managers.

A small portion of the reserves has been assigned to the external asset managers (EAMs), with the main objective of gaining access to and deriving benefits from their expertise and market research.

The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82% in July 2007-June 2008 to 4.16% in July 2008-June 2009.

Gloomy days are history for India's auto sector

Indian automobile sector ended up the year 2009 with high optimism as the industry sales showed a robust growth during the last month of the calendar year 2009.

According to a recent announcement made by the Society of Indian Automobile Manufacturers (SIAM) the automobile sales in India for the month of December 2009 stood at 1,000,500 units, showing an increase of 67.5% against the low base of 597,622 units in December 2008.

The growth is believed to be the highest so far in 2009–10, followed by the growth of 46% recorded in November 2009.

“A combination of factors like the three fiscal stimulus packages, low interest rates on vehicle financing made possible by PSU banks, cash infusion from the sixth pay commission and new models from manufacturers have helped December sales to rise,” says Pawan Goenka, President of the Society of Indian Automobile Manufacturers and President of Mahindra & Mahindra, at the ongoing Auto Expo 2010.

The rise in automobile sales would create repercussions on the metals industry, as the industry had faced one of the worst phases in the late 2008 and early 2009. Credits drying up and order deferments had put the metal companies in a fix. However, the times changed with government fiscal stimulus packages taking off well and industry once again started pounding.

On the stock exchanges, auto stocks posted heavy returns. On the Bombay Stock Exchange (BSE), the sectoral index, BSE Auto index gained significantly during the calendar year 2009. Since the start of the year, BSE Auto index surged from 2448.40 points to 7435.83 points through the year.

Leaders in auto sector, Tata Motors Ltd (BOM: 500570) gained 409.38% during the year 2009 on the BSE, Bajaj Auto Ltd (BOM: 532977) yielded 369.41% returns from 1st January 2009 to 31st December 2009. Mahindra & Mahindra Ltd (BOM: 500520) and Maruti Suzuki India Ltd (BOM: 532500) posted returns worth 307.08% and 205.36% respectively during the said period.

The 68 per cent rise in December 2009 sales was made possible by the sustained growth in cars and utility vehicles (50 per cent), continued growth in medium & heavy commercial vehicles on a low base last year (248 per cent), and in two-wheeler sales (67 per cent) last month.

Sales of large commercial vehicles, termed medium and large trucks and buses, rose for the fifth consecutive month. The December rise was an impressive 248 per cent, in which the industry sold a record 24,037 units. This is the highest growth posted by the CV industry for this year. The fourth quarter of 2009 was a low base in sales of large Cvs, when it dipped between 50 and 70 per cent. Industry executives say the high growth will continue even in the first quarter of 2010, on the back of buying before the new emission norms get effective in April. Total sales of CVs, (including light CVs) was 48,614 units.

Sales of three-wheelers, on the back of good demand for passenger carriers, grew by 83.7 per cent, at 34,993 units. Two-wheeler sales for December, led by Hero Honda and a resurgent Bajaj Auto, rose by 67 per cent, enabling manufacturers to sell 767,796 units.

Sales of passenger vehicles in December grew by 50 per cent, with the industry selling 149,097 units. November sales growth was the highest, at 67 per cent.

Global tea prices likely to ease in 2010: FAO

The global tea prices are expected to dip in 2010 from a record high in the previous year as the weather patterns are observed normal in the major tea producing countries of Asia and Africa, said UN’s Food and Agriculture Organization.

The drought driven by weak weather condition in India, Sri Lanka and Kenya, had impacted the production badly amid increased demand, which led to a spurt in tea prices in 2009.

However, the global consumption surged sharply between 2007 and 2009 by 3.4% against the production. The concern is that tea producers could over-react to the current high prices by planting more crops, threatening an over supply in the market, FAO said.

The fact that demand for tea remained robust, despite the global recession, supports the assertion that tea consumption is “habit forming” and is relatively price inelastic for most blends except higher priced quality teas.

In addition, the share of household income spent on tea purchases is relatively small. Supply response to high tea prices has been delayed as it requires investment decisions that have long-term implications: it takes at least three years before a tea bush can be harvested.

Higher tea prices have not affected the consumer in developed countries because of intense competition in the beverages market.