China detains Rio Tinto executive

A Rio Tinto executive was held captive by Chinese authorities in Shanghai on suspicion of espionage and accused of stealing state secrets. Stern Hu, General Manager for Rio Tinto's iron ore operations in China, may face formal charges. Rio Tinto said that four Shanghai-based employees have been taken into custody by Chinese authorities, although the company does not know why they are being held. The company has not had any contact with the employees since they were detained. The Anglo-Australian miner's Shanghai office handles sales and marketing to its major Chinese customers, who is the biggest buyers of Rio Tinto's iron ore globally. The incident comes in the backdrop of sensitive annual iron-ore price talks between the leading miners and Chinese steelmakers. China fell out with Rio Tinto after the latter rejected a big investment by China’s state-backed aluminium firm. China is also trying to whittle down iron-ore prices in talks with Rio Tinto and other major miners.

Reports suggested that a Chinese steel executive detained along with four Rio Tinto employees is being investigated for leaking China's bottomline on iron ore prices. Tan Yixin, the head of iron ore imports for state-owned steelmaker Shougang, is suspected of revealing China's negotiating strategy to the Anglo-Australian miner. This week's shock detentions left the price talks on annual iron ore contracts in shambles and cast a shadow on relations between China and Australia.

IMF lifts global growth forecast

The worst recession in several decades is moderating but it would be too early to withdraw the slew of government measures aimed at lifting the global economy, says a new report released by the International Monetary Fund (IMF). "The recovery is coming but it is likely to be a weak recovery," said Olivier Blanchard, the IMF's chief economist at a press conference. "It is too early to implement exit strategies," Blanchard said. The IMF raised its forecast for 2010 global growth to 2.5% compared with its forecast for a 1.9% rate in April. The global recession should end in the second half of 2009, the New York-based agency said. The advanced economies will lag, with the recession ending in the middle of 2010, it added.

But this higher growth rate still is not strong enough to stop unemployment from rising, Blanchard said. The IMF said that it would be too soon to end the various government-backed stimulus measures. There is nothing wrong in drawing up exit strategies but they should not be implemented, it said. "The recovery is fragile. Policymakers must continue the strong monetary, fiscal and financial policies that they have put in place. If they do not, there is a great risk that the recovery falters," Blanchard said.

Asia will continue to outperform the rest of the world but it cannot decouple from the weakness in the US and Europe, he said. A gradual recovery in the US remains on track, the IMF said, adding that the euro-area growth will lag the other areas. The risks to the global financial system have moderated from April, the IMF said. Risks of another Lehman Brothers like crisis have diminished, the agency said. But financial conditions remain tight. "Banks are still not in great shape and continue to retrench and tighten lending standards," Blanchard said.

US picks 9 firms for toxic debt program debt program

The Barack Obama administration selected nine financial companies to manage a scaled-down program aimed at helping troubled American banks clean up their strained balance sheets and said it would invest up to US$30bn to get it started. The program is designed to take up to US$40bn in so-called toxic commercial and residential mortgage securities and other assets off bank balance sheets so that they can provide new sources of lending to the world's largest economy. Among those selected to serve as asset managers of the Public-Private Investment Program were BlackRock, AllianceBernstein, Oaktree Capital Management, Invesco, Angelo, Gordon & Co., Marathon Asset Management, RLJ Western Asset Management, The TCW Group and Wellington Management Co.

The Treasury chose the nine investors from a group of 100 potential participants agency officials considered last month. The firms will have 12 weeks to raise US$500mn of capital each from private investors willing to invest in toxic securities held on banks' books. However, they must take at least four weeks to raise the funds. Those investments will be matched by the Treasury and supplemented with debt financing from the agency. The private investors must also invest at least US$20mn of firm capital into the program, known as the Legacy Securities Program.

In addition, 10 women- and minority-owned asset management firms were chosen to serve as partners. The Treasury will match up to US$10bn in equity put up by the private investors along with as much as US$20bn in debt financing. This is significantly less th

Marico subsidiary plans IPO in Bangladesh

Marico Ltd. announced that Marico Bangladesh Ltd. (MBL), a wholly owned subsidiary of the company, has received the approval of the Bangladesh Securities & Exchange Commission (SEC) to its proposal for making an Initial Public Offer (IPO) in Bangladesh. The IPO is scheduled to open in August 2009 and will offer 14,92,100 ordinary shares of Taka 10 each at an issue price of Taka 90 per share (including premium of Taka 80 each). The shares of MBL would be listed in Bangladesh on the Dhaka Stock Exchange and the Chittagong Stock Exchange.

Bharati Shipyard hikes open offer price for Great Offshore

Bharati Shipyard Ltd., which is locked in a bidding war with local rival ABG Shipyard Ltd. for acquiring Great Offshore Ltd., increased its open offer price for the target company. Bharati, which holds 19.47% of Great Offshore, lifted its offer to Rs405 per share from Rs344 a share. Natural Power Ventures Pvt. Ltd., along with Bharati Shipyard and Dhanshree Properties Pvt. Ltd. aim to acquire up to 78,26,788 fully paid-up equity shares of Rs10 each, representing 20% of the Emerging Voting Capital of the Target Company. Accordingly, the open offer size stands revised to Rs3.17bn.

On June 23, Kotak Mahindra Capital Co. on behalf of Eleventh Land Developers Pvt. Ltd. along with ABG Shipyard Ltd. proposed to acquire 1,25,71,072 shares of the Target Company at Rs375 per Share in cash.

On the same day, DPPL acquired 16,99,611 shares of the Target Company, constituting 4.58% of the paid-up share capital at a price of Rs403 per share through a block deal from Laadki Trading & Investment Ltd., Bharat Kanaiyalal Sheth, Ravi Kanaiyalal Sheth, Jyoti B Sheth and Amita Ravi Sheth. Consequent to this acquisition, the cumulative shareholding of Bharati Shipyard in the Target Company aggregates to 19.47% of the paid-up share capital.

Budget leaves rating negatives open: S&P

Standard & Poor's Ratings Services maintains its view that India's high fiscal deficits are not sustainable in the medium term and if fiscal consolidation is delayed, there is a risk that the sovereign credit ratings on India (BBB-/Negative/A-3) may be lowered. Although the central government budget deficit of 6.8% of GDP for fiscal 2009-10 was high at almost double the 2.7% recorded in fiscal 2007-08, it was within S&P expectations. Including state government deficits and off-balance-sheet items such as oil and fertilizer bonds, the deficit is estimated to reach about 12% of GDP in fiscal 2009-10. S&P revised the outlook on India to negative on Feb. 24, 2009, on expectations of increasing fiscal deficits. It continues to believe that such high levels of deficits are unsustainable in the medium term, although it was not surprised by the number itself. If India achieves fiscal consolidation in the next two to three years, the sovereign ratings on India could be maintained at 'BBB-' and the outlook revised to stable, S&P said.

Inflation falls for 4th consecutive week

India’s inflation, as measured by the wholesale price index (WPI), fell for the fourth consecutive week mainly owing to a high base effect, but the contraction in the key price gauge is expected to halt following last week's fuel price hike. The annual, point-to-point inflation stood at (-)1.55% in the week ended June 27, 2009 compared to (-)1.30% in the previous week, the Commerce & Industry Ministry said. Inflation rate was at 12.03% during the week ended June 28, 2008.

It may be recalled that the Government raised the price of petrol and diesel by Rs4 per litre and Rs2 a litre, respectively with effect from July 1 in line with the recent spurt in crude oil prices. However, the prices of politically sensitive kerosene and LPG were left untouched. Media reports soon after the fuel price hike suggested that prices of essential commodities, particularly that of food articles, could spike as transporters and truck operators were likely to raise their freight rates.

Aside from the recent increase in the price of petrol and diesel, the other worrying aspect is the frequent upward revision being done by the Government. Today, the Commerce Ministry said that it was revising inflation rate for the week ended May 2, to 1.48% from its preliminary estimate of 0.48%. The WPI for the same period stood at 233.9 compared to the provisional forecast of 231.6.

May IIP beats expectations

India's industrial output, as measured by the index of industrial production (IIP) rose 2.7% in May as against expectations of 1.3-15%. India's April-May 2009 industrial output rose 1.9% from 5.3% year ago. The Government announced that it was revising March industrial output to -0.75% from -0.8%, and April's figure to 1.2% as against 1.4%.

Manufacturing segment, which accounts for the major chunk of IIP, grew by 2.5% in May 2009 as against 4.5% in the same month last year. The mining group’s output expanded by 3.7% in the month under review versus 5.5% recorded in May 2008. Electricity segment saw a growth of 3.3% in May 2009 as against 2% in the year-ago period.

Category wise, Basic Goods grew by 3.8% in May 2009 versus 3% last year, while Capital Goods witnessed a drop of 3.6% in the month as against a growth of 4.3% in May 2008. Intermediate Goods growth stood at 6.1% in the month compared to 1.9% in the same month a year earlier.

Growth in overall Consumer Goods was at 1.2% in May 2009 versus 7.4% in May 2008. Consumer Durables saw did extremely well, notching up a growth of 12.4% as against 2.8% in May 2008. Consumer Non-Durables contracted by 2.3% in the month under consideration versus 9% in the year-ago period.

Weekly Stock Picks - July 11 2009

Buy TCS

Buy LITL

Buy JP Hydro

Buy IndusInd Bank

Buy BEML

Weekly Newsletter - July 11 2009

It’s going to rain results not just in India but also in the US and elsewhere in the world. While the tech sector led by Infosys did show some resilience after posting decent numbers, the overall market appears to be in a weak spot. The global cues have been lending no support. FIIs have been dumping stocks though statistically the figures are positive for the week. The concerns regarding monsoon will be expressed for some time to come. There is also fear of some downgrades from rating agencies.

On the brighter side, the IIP numbers have shown improvement and order books continue to increase for many companies.

Oil has come below US$60 and if it remains lower there is a chance that the government may chose to rollback the recent hike in fuel prices.

There is no clear direction as yet. The market has been on a downhill ever since the Union budget was announced. With no popular policies likely soon, recouping those losses will need some FII power for now.

Budget...big bets belied; markets tumble

Much was riding on Finance Minister Pranab Mukherjee, but he seemed to have other ideas. May be the back-to-back election wins for the UPA on the "Aam Aadmi" formula inspired him to base the budget on the same theme. Expectedly, the UPA's pet social schemes received generous giveaways even as the fiscal deficit target was revised much higher. India Inc. was happy that FBT was scrapped, but on the flip side the Finance Minister hiked the MAT substantially.

For the markets, there was nothing much to cheer about, barring the shelving of commodity transaction tax (CTT). The Rs11bn disinvestment target left a lot to be desired though there were reports that something concrete should be announced in a few months. Mukherjee also chose to remain silent on what the UPA's plans are on the FDI front. However, here too there is hope that something could materialise over the next few months.

Among the positives included reiteration of April 2010 timeline for the rollout of GST. A new tax code is to be ready in the next 45 days. Removal of tax surcharge on income above Rs10 lakh and increase in the Income Tax exemption limit were also welcomed. Extension of tax benefits for EOUs and STPI units coupled with investment-linked incentives for cold storage, gas pipelines, etc. were also well received.

In a nutshell, the trend of boosting domestic consumption through fiscal stimulus was extended to the budget as well in light of the tentative global recovery. But, it remains to be seen if the gamble pays off without any commensurate improvement in the investment scenario. The biggest concern of course rests with regard to the ballooning fiscal deficit and revenue deficit. There are apprehensions that even these seemingly uncomfortable targets could be overshot.

The markets were not amused, with the Sensex suffering its biggest budget day collapse. The Sensex and the Nifty lost about 10% each, the biggest weekly loss since October 2008. It may be recalled that on the day after the election result, the market soared with the key indices getting frozen at the upper circuits not once, but twice. That exuberance was due to expectations that the UPA, sans Left front, would now be able to push ahead with key reforms.

Market may remain volatile

The market may remain choppy next week as companies post their Q1 June 2009 earnings. Larsen and Toubro, HDFC Bank
, and Axis Bank are some major companies announcing results next week.

Despite the prevailing market weakness, the undertone still remains bullish as analysts expect a turnaround in the economy the near future as government stimulus packages take effect.

India's industrial output rose by a higher-than-expected 2.7% in May 2009, indicating interest-rate cuts and stimulus measures are helping revive demand.

With factory activity picking up in India, it is only a matter of time before brokerages and investment houses begin to upgrade earnings forecasts for companies, a move that would justify the spectacular rally in stocks in the last three months.

The International Monetary Fund on Wednesday, 8 July 2009, raised India's growth forecast to 5.4% for 2009, even as it projected the world economy to shrink by 1.4%. In April 2009, it forecast a growth of 4.5% for India.

Market moves next week will be dictated mainly by corporate earnings. Companies declaring their June 2009 ended quarter results next week include, Indowind Energy, Motilal Oswal Financial Service, Geojit BNP Paribas Financial Services, Power Finance Corporation, Jammu and Kashmir Bank, Piramal Life Sciences, Sintex Industries, Rallis India, Jubilant Organosys, IDBI Bank, Bajaj Finserv, IL&FS Investment Managers, Television Eighteen, Bajaj Auto, Zee Entertainment Enterprises, Mid-Day Multimedia, Bajaj Holdings, Exide Industries, Opto Circuits, Swaraj Engines, Colgate Palmolive, SKF India, Sasken Communication, Kirloskar Brothers, Radico Khaitan, Century Plyboards, Container Corporation of India, and Wyeth.

India's monsoon is another notable factor to watch out. Rains have caught up in the last seven days over most of India but water in the main reservoirs has more than halved, putting at risk even winter-sown oilseeds and wheat. Monsoon rains were 8% below normal in early July 2009

India, where 60% of farms depend on the monsoons, may be hit by a bad drought if annual monsoon rains remain weak with the window for planting crops closing by mid-July, a report from a US Agricultural Department (USDA) attache said.

Equities dropped last week on concerns of a ballooning fiscal deficit and disappointment that the Finance Minister did not announce major liberalization measures in his new budget. A cautionary statement on India's sovereign rating by Standard & Poor's (S&P), the credit rating agency, further weighed on Indian market.

A rating downgrade forces many foreign investors to withdraw money from a country since their agreement with investors does not allow them to invest in lower-rated economies. That can cause a big decline in share prices. S&P has a BBB-minus rating on India's foreign currency
long-term debt, the lowest investment grade. Any fresh downgrade will rank India as 'junk', or non-investment grade status.

However, a section of the market expects buying support for stocks at lower level due to recovery of the India economy from a slowdown last year.

Derivatives: Market seems oversold, however volatility may continue

Many short positions were built-up in front-line index components, and any positive trigger from the corporate results may result in short covering and facilitate recovery in the index

An extremely disappointing budget that was presented on Monday 6th July 2009 by the Finance Minister Pranab Mukherjee completely reversed the market mood. Although there were some promising measures in terms of rural infrastructure and growth announced during the union budget, the government did not give any clear road map. Besides the fiscal deficit for budget year 2009-2010 was estimated to be around 6.8% without giving any concrete road map to bring down the same. The consequence was that the S&P CNX Nifty corrected 258.55 points or 5.84% on the budget day. After that the market remained extremely volatile throughout the week thus correcting by 420.35 points during the week ended 10th July 2009. Fresh short in some of the front-line stocks futures besides Nifty were witnessed throughout the week.

Equities dropped last week on concerns of a ballooning fiscal deficit and disappointment that the Finance Minister did not announce major liberalization measures in his new budget. A cautionary statement on India's sovereign rating by Standard & Poor's (S&P), the credit rating agency, further weighed on Indian market. S&P has a BBB-minus rating on India's foreign currency long-term debt, the lowest investment grade. Any fresh downgrade will rank India as 'junk', or non-investment grade status.

Some of the Nifty components added significant shares in Open Interest (OI) with fall in prices during the week, thus indicating fresh short being build-up in these counters. For e.g. for the full week ended July 10, Reliance added 7.11 lakh shares in OI, whereas Tata Steel added 8.30 lakh shares in OI. Other major counters like Unitech, ICICI Bank and Sail added 12.1 lakh shares, 8.49 lakh shares and 25.79 lakh shares in OI respectively. Rcom on the other hand shed 10.91 lakh shares in OI for the full week ended 10th July.

Nifty near month contract added 8.45 lakh shares in OI on 10th July owing to which the OI for the full week added nearly 5 lakh shares.

The most negative has been that the Nifty near month future traded at a discount to the underlying throughout the week and on Friday it closed at 10.20 points discount to the underlying. On Friday the Nifty spot fell 77.05 points to close at 4003.90 due to sudden selling towards the end of the day.

In the option segment the Nifty 4400 and 4300 call witnessed significant call writing on the budget day combined with aggressive put buying of 4300 strike. Thus the bearish outlook continued throughout the week with the most active strikes being 3800 to 4300 levels for both the puts and the calls. On Friday (10th July 2009) there was aggressive call writing at 4000 and 4100 strikes. Both these strikes added 5.77 lakh shares and 9.86 lakh shares in OI. On the other hand the same strike puts witnessed winding of OI during the day. Both these puts shed 3.41 lakh shares and 2.72 lakh shares in OI

The index put call ratio was 0.88 on 10th July 2009 as compared to 0.89 during the previous trading session, whereas the stock put call ratio increased to 0.36. Thus the market wide put call ratio was 0.85 as compared to 0.86 on 9th July 2009.

The week gone-by has been extremely disappointing for the market as it seems to have over reacted to the budget. The market is expected to remain volatile in the coming week as well as some of the front-line companies like Larsen and Toubro, HDFC Bank, and Axis Bank will declare their 1st quarter results. Although India's industrial output rose by a higher-than-expected 2.7% in May 2009, the ongoing monsoon development will be closely watched as more than 60% of farms output depends on the monsoons. The International Monetary Fund on Wednesday, 8 July 2009, raised India's growth forecast to 5.4% for 2009, even as it projected the world economy to shrink by 1.4%. In April 2009, it forecast a growth of 4.5% for India. The market seems to be oversold though, now since many short positions are built-up in some of the front-line index components, any positive trigger from the corporate results may result in short covering thus enabling the index to regain the lost ground.