Cabinet panel to take the final view in two weeks
A group of ministers (GoM) has decided to recommend approval to the $9.8-billion Cairn-Vedanta deal to the Cabinet Committee on Economic Affairs (CCEA). A final call on whether the approval will be conditional will be taken by CCEA within two weeks.
After the GoM meeting, which lasted more than an hour, Petroleum Minister S Jaipal Reddy did not say whether it would be a conditional approval. “It (GoM) has taken a view on the matter ... It will be placed before CCEA in two weeks,” he said.
The deal was opposed by Oil and Natural Gas Corporation (ONGC), Cairn’s partner in its most prolific block in Barmer in Rajasthan. Under the original agreement, ONGC was to pay the entire royalty on production, though it was entitled to just 30 per cent revenue. After the deal was announced, ONGC said the royalty should be ‘cost-recoverable’. Making royalty cost-recoverable will pass on some burden on this account to Cairn India and the government.
Reddy reiterated support for ONGC’s claim. “My view was contained in the note put up to CCEA. I have always taken the view that ONGC’s claim that the royalty should be cost-recoverable is supported by us,” Reddy said, but clarified that he was not referring to the recommendation that might be made by the GoM. (Click here for table & graph)
Reddy said the GoM had “no authority to take a decision” but added it had taken a unanimous view.
Vedanta wants to buy a majority stake in Cairn India. Sesa Goa, its subsidiary, has already bought a 8.1 per cent share in an open offer. It has also bought a 10.4 per cent stake from Malaysia’s Petronas, raising its total holding to 18.5 per cent. On approval, Cairn Energy Plc will sell a 40 per cent stake in Cairn India to Vedanta. After this, Cairn will hold a 21.7 per cent stake in the company.
In April, the cabinet, which was supposed to take a decision on the deal, referred the matter to the GoM. The petroleum ministry circulated a cabinet note that gave two options — either conditional clearance or absolute clearance while leaving legal recourse open to both Cairn India and ONGC.
There is also an issue of cess on production from the Barmer block that is under arbitration.
In August 2010, London Stock Exchange-listed Vedanta Resources had announced plan to buy up to 60 per cent stake in Cairn India for $9.6 billion. The deal however ran into hurdles with petroleum ministry insisting on written applications to clear the deal.
Friday, May 27, 2011
Weak dollar, Greek debt propel gold to 3-week high
LONDON: Gold hit its highest in more than three weeks on Friday as worries about Greece's debt crisis triggered buying by investors looking for a safe place to park assets, while the softer dollar also helped underpin sentiment.
Spot gold hit $1,534.80 a troy ounce, its highest since May 4. It was bid at $1,527.90 an ounce at 1351 GMT from $1,518.10 late in New York on Thursday.
Gold's appeal has been boosted in recent weeks by worries about contagion from Greece to Ireland, Portugal and Spain.
The dollar fell to session lows against the euro after European Central Bank Governing Council member George Provopoulos said Greece can handle its debt if it sticks to its aid programme..
"The dollar is weaker, boosting commodities," said Peter Fertig, a consultant at Quantitative Commodity Research. "Also don't forget the situation in the euro zone, especially the latest comments from an EU official."
In the latest development on the Greek crisis, the head of euro zone finance ministers Jean-Claude Juncker said the International Monetary Fund could withhold the next slice of aid to Greece due next month.
"The chances of debt default by Greece are rising," a trader said, adding higher oil prices were also helping gold.
Gold is used by investors as a hedge against inflation, often triggered by rising oil prices.
SILVER HEDGING
Holdings of the largest silver-backed ETF, New York's iShares Silver Trust and the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust were unchanged on Thursday from Wednesday.
Overall though interest in gold ETFs remains unabated. However, that is not true of silver ETFs. Holdings have fallen by nearly nine million ounces this week, bringing year-to-date outflows to 42.79 million ounces or 8.4 percent.
Part of the reason behind silver's losses are producer hedging, an indication prices may be peaking.
Focus in the silver market was on Mexican miner Penoles, which earlier this week said it had hedged 13.4 million ounces of silver through 2013.
"This is not the first time that we're hearing of silver producer hedging this year," UBS said in a note.
Spot silver was bid at $38.04 an ounce from $37.24 late on Thursday, platinum at $1,785.49 from $1,764.85 and palladium at $755.72 from $751.45.
"We believe that the cash cost of the marginal producer is still the relevant benchmark to judge whether platinum and palladium provide value or not," Standard Bank said in a note.
"Therefore, the market could trade lower, fundamentally growing value in platinum and palladium on approach of $1,700 and $700 respectively."
Spot gold hit $1,534.80 a troy ounce, its highest since May 4. It was bid at $1,527.90 an ounce at 1351 GMT from $1,518.10 late in New York on Thursday.
Gold's appeal has been boosted in recent weeks by worries about contagion from Greece to Ireland, Portugal and Spain.
The dollar fell to session lows against the euro after European Central Bank Governing Council member George Provopoulos said Greece can handle its debt if it sticks to its aid programme..
"The dollar is weaker, boosting commodities," said Peter Fertig, a consultant at Quantitative Commodity Research. "Also don't forget the situation in the euro zone, especially the latest comments from an EU official."
In the latest development on the Greek crisis, the head of euro zone finance ministers Jean-Claude Juncker said the International Monetary Fund could withhold the next slice of aid to Greece due next month.
"The chances of debt default by Greece are rising," a trader said, adding higher oil prices were also helping gold.
Gold is used by investors as a hedge against inflation, often triggered by rising oil prices.
SILVER HEDGING
Holdings of the largest silver-backed ETF, New York's iShares Silver Trust and the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust were unchanged on Thursday from Wednesday.
Overall though interest in gold ETFs remains unabated. However, that is not true of silver ETFs. Holdings have fallen by nearly nine million ounces this week, bringing year-to-date outflows to 42.79 million ounces or 8.4 percent.
Part of the reason behind silver's losses are producer hedging, an indication prices may be peaking.
Focus in the silver market was on Mexican miner Penoles, which earlier this week said it had hedged 13.4 million ounces of silver through 2013.
"This is not the first time that we're hearing of silver producer hedging this year," UBS said in a note.
Spot silver was bid at $38.04 an ounce from $37.24 late on Thursday, platinum at $1,785.49 from $1,764.85 and palladium at $755.72 from $751.45.
"We believe that the cash cost of the marginal producer is still the relevant benchmark to judge whether platinum and palladium provide value or not," Standard Bank said in a note.
"Therefore, the market could trade lower, fundamentally growing value in platinum and palladium on approach of $1,700 and $700 respectively."
Lead Indicator Index dips to 104 points
The Edelweiss ET Now Lead Indicator Index for May has dipped considerably to 104 points, reflecting an underlying weakness in the economy.
According to Nischal Maheshwari, head of research, Edelweiss Securities , "What has specifically changed for the month is that cement dispatches have been particularly weak. In this case, it was nine months ago when cement dispatches were weak, so that's why the indicator has come down."
The weakness in the Lead Indicator Index is not being seen as a one-off situation. While the index has been strong for some months now, the weakness could continue for time to come.
"General conditions out there are becoming a bit weak and that is why the indicator is also giving in," says Mr Maheshwari. "I believe some amount of moderation is definitely on the cards because the IIP - one of the indicators we use - the CV cycle, the rising interest rate and sticky inflation will continue to put pressure on the indicator," he adds.
"We also have been tracking inflation very closely. We agree with the government's indication of peaking out, maybe around September or October," explains Mr Maheshwari.
The index peaked in the second quarter of FY11 but moderated thereafter, capturing moderation in the non-agri GDP in the subsequent quarters.
According to Nischal Maheshwari, head of research, Edelweiss Securities , "What has specifically changed for the month is that cement dispatches have been particularly weak. In this case, it was nine months ago when cement dispatches were weak, so that's why the indicator has come down."
The weakness in the Lead Indicator Index is not being seen as a one-off situation. While the index has been strong for some months now, the weakness could continue for time to come.
"General conditions out there are becoming a bit weak and that is why the indicator is also giving in," says Mr Maheshwari. "I believe some amount of moderation is definitely on the cards because the IIP - one of the indicators we use - the CV cycle, the rising interest rate and sticky inflation will continue to put pressure on the indicator," he adds.
"We also have been tracking inflation very closely. We agree with the government's indication of peaking out, maybe around September or October," explains Mr Maheshwari.
The index peaked in the second quarter of FY11 but moderated thereafter, capturing moderation in the non-agri GDP in the subsequent quarters.
SpiceJet posts Rs 59 cr loss in Q4
NEW DELHI: Low-cost carrier SpiceJet on Friday posted a net loss of Rs 59 crore for the last quarter of 2010-11 fiscal due to high jet fuel prices.
The company had reported a net profit of Rs 27 crore during the corresponding period of 2009-10.
"One of the main reasons which affected our operations was fuel costs, which accounted for about 52 per cent of total costs during the quarter," SpiceJet CEO Neil Mills said.
Total revenues of the company, however, grew by 32.51% to Rs 758 crore during the quarter vis-a-vis Rs 572 crore reported during the corresponding quarter of FY10, he said.
For 2010-11 financial year, net profit jumped by 64.63% to Rs 101.15 crore compared to a net profit of Rs 61.44 crore in FY10. Total income rose by over 33% to Rs 2,934.38 crore in FY11 compared to Rs 2,202.40 crore of 2009-10. "We are pleased with our results. Despite higher fuel costs in the last quarter and irrational behaviour on pricing front by the competitors, we have managed to keep costs under control. We have, in fact, outperformed the industry during the year," Mills said.
The company had reported a net profit of Rs 27 crore during the corresponding period of 2009-10.
"One of the main reasons which affected our operations was fuel costs, which accounted for about 52 per cent of total costs during the quarter," SpiceJet CEO Neil Mills said.
Total revenues of the company, however, grew by 32.51% to Rs 758 crore during the quarter vis-a-vis Rs 572 crore reported during the corresponding quarter of FY10, he said.
For 2010-11 financial year, net profit jumped by 64.63% to Rs 101.15 crore compared to a net profit of Rs 61.44 crore in FY10. Total income rose by over 33% to Rs 2,934.38 crore in FY11 compared to Rs 2,202.40 crore of 2009-10. "We are pleased with our results. Despite higher fuel costs in the last quarter and irrational behaviour on pricing front by the competitors, we have managed to keep costs under control. We have, in fact, outperformed the industry during the year," Mills said.
Mumbai Indians winners on social media
MUMBAI: As the Indian Premier League ( IPL-4) draws to a close, Mukesh Ambani-owned Mumbai Indians (MI) have gathered the most amount of support across social media platforms followed by liquor baron Vijay Mallya's Royal Challengers Bangalore (RCB). According to a report by NM Incite, a Nielsen McKinsey company, among the players, Indian skipper MS Dhoni has emerged as the most discussed player on social media websites with the West Indian star Chris Gayle taking the second spot. Interestingly, Dhoni's Chennai Super Kings (CSK) beat Gayle's RCB in the playoffs to book a place in Sunday's final.
On the brand front, Samsung, Vodafone, Cadbury and Volkswagen top the list of brands which were the most talked about on blogs, discussion boards and online forums, said the report which was shared with TOI.
"In this edition of the IPL brands have created campaigns that are capable of engaging the digital consumer effectively. We find that this triggers positive buzz which can result in increased purchase intent," said Adrian Terron,VP, Nielsen.
Although, social networking websites like Facebook and Twitter have become part of every brand's marketing strategy, blogs and forums have also been used by brands increasingly, said the report. The report was generated by analyzing data collected by monitoring social media channels from the start of the tournament till May 13.
Samsung, which ran television campaigns during the IPL for its smartphone, Galaxy Tab, as well as its 3G phone, Hero, backed it up with increased online activity in this year's tournament. It also advertised during the live streaming of IPL matches. "Given the committed viewership that the IPL generates, we used the platform to launch five new campaigns so that we could generate the visibility as well as create awareness around these products online," said Ranjit Yadav, country head, Samsung Mobile & IT.
While CSK captain Dhoni was the most popular on international forums, the domestic blogs and boards had RCB's Gayle topping the charts. Indian and international players were a part of the list of players leading online discussions with Sachin Tendulkar and Sourav Ganguly featuring on it.
"When compared to the World Cup, brands haven't necessarily managed to draw similar linkages between themselves and the players that endorse them this time around," said Nielsen's Terron. Besides, the Mumbai and Bangalore teams, CSK and Shah Rukh Khan's Kolkata Knight Riders (KKR) were also able to create a sense of community online. Even the two new franchises, Kochi Tuskers and Pune Warriors, appear to have garnered a fifth of social media mentions, said the report.
On the brand front, Samsung, Vodafone, Cadbury and Volkswagen top the list of brands which were the most talked about on blogs, discussion boards and online forums, said the report which was shared with TOI.
"In this edition of the IPL brands have created campaigns that are capable of engaging the digital consumer effectively. We find that this triggers positive buzz which can result in increased purchase intent," said Adrian Terron,VP, Nielsen.
Although, social networking websites like Facebook and Twitter have become part of every brand's marketing strategy, blogs and forums have also been used by brands increasingly, said the report. The report was generated by analyzing data collected by monitoring social media channels from the start of the tournament till May 13.
Samsung, which ran television campaigns during the IPL for its smartphone, Galaxy Tab, as well as its 3G phone, Hero, backed it up with increased online activity in this year's tournament. It also advertised during the live streaming of IPL matches. "Given the committed viewership that the IPL generates, we used the platform to launch five new campaigns so that we could generate the visibility as well as create awareness around these products online," said Ranjit Yadav, country head, Samsung Mobile & IT.
While CSK captain Dhoni was the most popular on international forums, the domestic blogs and boards had RCB's Gayle topping the charts. Indian and international players were a part of the list of players leading online discussions with Sachin Tendulkar and Sourav Ganguly featuring on it.
"When compared to the World Cup, brands haven't necessarily managed to draw similar linkages between themselves and the players that endorse them this time around," said Nielsen's Terron. Besides, the Mumbai and Bangalore teams, CSK and Shah Rukh Khan's Kolkata Knight Riders (KKR) were also able to create a sense of community online. Even the two new franchises, Kochi Tuskers and Pune Warriors, appear to have garnered a fifth of social media mentions, said the report.
Taming price rise: Govt panel for FDI in multi-product retail
NEW DELHI: An inter-ministerial group (IMG) on inflation has recommended allowing foreign direct investment in multi-product retail as one of the two steps to tame rising prices and cut down the margin between farm gate and retail prices.
This is the first formal recommendation by a government panel to allow FDI in the tightly policed and sensitive retail sector.
"It is time for India to allow foreign direct investment in multi-product retail and the IMG recommends that the government considers this at the earliest. Reform in this sector can be an effective inflation busting measure," Basu told reporters. The proposals will be sent to Prime Minister Manmohan Singh and finance minister Pranab Mukherjee.
Basu said he was hopeful that the government will consider the proposal soon.
The move, which comes shortly after the end of key state elections, will now be discussed by the government and then sent to the cabinet for approval. But analysts say it is expected to face stiff opposition from political parties and traders.
The government allows 51% FDI in single brand retail and 100% in the wholesale cash-and-carry segment but has shied away from opening up the multi-product segment to foreign participation fearing opposition from small shop owners and political parties.
Stubbornly high inflation has forced the government to focus on revamping the supply chain particularly distribution of food grains, fruits and vegetables.
But the IMG cautioned that entry of FDI in this sector should be properly regulated and steps should be against these new corporations becoming monopolistic and charging high prices.
The government has taken a series of steps to ease the pain of high food prices while the Reserve Bank of India has raised interest rates nine times since March 2010 to calm inflation which currently stands at 8.66%, much above the comfort level of policymakers.
Several foreign retail giants such as Wal-Mart and Carrefour are present in the wholesale trading segment and other top retailers have been eyeing an entry into India's multi-product retail sector for the past several years. Some estimates say that the country's retail sector could be nearly $260 billion by 2020.
"Modern retail is capable of bringing down prices by as much as 20% on various products if the distribution system is revamped. What is needed at this point is a new supply chain system which will directly source from farmers and therefore help lower costs along with minimizing damages done to goods," said Kishore Biyani, promoter of the Future Group, which runs stores like Big Bazaar and Food Bazaar.
"Only new retail can meet the demand of the growing needs of the Indian consumer," he said.
The IMG also recommended revamping the Agricultural Produce Marketing Committee (APMC) Act to enable farmers to bring their products to retail outlets and also allow retailers to directly purchase from the farmers without facing blockade by incumbent traders. It said the APMC system has abetted monopolistic behaviour and reduced the choices available to small farmers.
Spiralling prices forced the government to set up the IMG in early February and the group was entrusted with the task of recommending policies to calm food inflation and demand management.
In India, the share of organized retail in the total retail trade is just over 4% compared with 66% in Japan, 20% in China and 55% in Malaysia. The IMG says China allowed FDI in multi-product retail since 2004 and the benefits have been palpable.
"One way of playing an enabling role is to allow FDI in multi-product retail. This is a way to get new technology to come into the country and expand organized retail. While this policy alone may not achieve all the results, it can be an important step in serving the interests of both consumers and farmers in the long run," the IMG said.
This is the first formal recommendation by a government panel to allow FDI in the tightly policed and sensitive retail sector.
"It is time for India to allow foreign direct investment in multi-product retail and the IMG recommends that the government considers this at the earliest. Reform in this sector can be an effective inflation busting measure," Basu told reporters. The proposals will be sent to Prime Minister Manmohan Singh and finance minister Pranab Mukherjee.
Basu said he was hopeful that the government will consider the proposal soon.
The move, which comes shortly after the end of key state elections, will now be discussed by the government and then sent to the cabinet for approval. But analysts say it is expected to face stiff opposition from political parties and traders.
The government allows 51% FDI in single brand retail and 100% in the wholesale cash-and-carry segment but has shied away from opening up the multi-product segment to foreign participation fearing opposition from small shop owners and political parties.
Stubbornly high inflation has forced the government to focus on revamping the supply chain particularly distribution of food grains, fruits and vegetables.
But the IMG cautioned that entry of FDI in this sector should be properly regulated and steps should be against these new corporations becoming monopolistic and charging high prices.
The government has taken a series of steps to ease the pain of high food prices while the Reserve Bank of India has raised interest rates nine times since March 2010 to calm inflation which currently stands at 8.66%, much above the comfort level of policymakers.
Several foreign retail giants such as Wal-Mart and Carrefour are present in the wholesale trading segment and other top retailers have been eyeing an entry into India's multi-product retail sector for the past several years. Some estimates say that the country's retail sector could be nearly $260 billion by 2020.
"Modern retail is capable of bringing down prices by as much as 20% on various products if the distribution system is revamped. What is needed at this point is a new supply chain system which will directly source from farmers and therefore help lower costs along with minimizing damages done to goods," said Kishore Biyani, promoter of the Future Group, which runs stores like Big Bazaar and Food Bazaar.
"Only new retail can meet the demand of the growing needs of the Indian consumer," he said.
The IMG also recommended revamping the Agricultural Produce Marketing Committee (APMC) Act to enable farmers to bring their products to retail outlets and also allow retailers to directly purchase from the farmers without facing blockade by incumbent traders. It said the APMC system has abetted monopolistic behaviour and reduced the choices available to small farmers.
Spiralling prices forced the government to set up the IMG in early February and the group was entrusted with the task of recommending policies to calm food inflation and demand management.
In India, the share of organized retail in the total retail trade is just over 4% compared with 66% in Japan, 20% in China and 55% in Malaysia. The IMG says China allowed FDI in multi-product retail since 2004 and the benefits have been palpable.
"One way of playing an enabling role is to allow FDI in multi-product retail. This is a way to get new technology to come into the country and expand organized retail. While this policy alone may not achieve all the results, it can be an important step in serving the interests of both consumers and farmers in the long run," the IMG said.
Thursday, May 26, 2011
Rising greenback could make you see red
Returns from the Indian market to weaken as the dollar gets stronger against major currencies.
For investors in the Indian stock market, the rising dollar is a cause of worry. With growth concerns across the world, foreign institutional investors are moving their money to safe havens. And in most cases, the safe haven happens to be the dollar.
The US Federal Reserve launched the QE2, its $600-billion bond buying programme, in November 2010 to prop up the ailing economy. With the programme expected to end in June, the liquidity conditions will become tighter. Fund managers, as a result, are already busy pruning their risky assets, including investments in Indian and other emerging market equities.
“Around 40 per cent of the money that enters India is hedge fund or hot money, which is interest rate and exchange rate-sensitive. There has been some flight of capital in anticipation of the QE2 ending,” said Saurabh Mukherjea, head of equities at Ambit Capital.
Besides the QE2 ending, sovereign debt woes emanating from Greece have also supported the dollar’s up move. Citigroup’s Hong Kong-based analyst Kelly Kwok said the dollar strengthened because whenever investors are risk averse, they sell other assets and buy the dollar.
As a result of these events, emerging market equities posted their first weekly loss last week (ended May 18) after seven consecutive weeks of inflows. According to an equity strategy report by Citi, emerging markets saw outflows of $1.6 billion for the week ended May 18, as investors sought to avoid risk.
No wonder then that the dollar and the Sensex’s inverse relationship has become very stark in the past three weeks. The Dollar Index, which measures the performance of the US dollar against the basket of six major currencies, has bounced from a recent low of 72.93 (April 29) to 75.62.
During the same period, the Indian benchmark Sensex has fallen 6 per cent. Foreign institutional investors (FIIs) have sold equities worth $1.74 billion (Rs 7,791 crore) in the Indian markets in May, according to data from the Securities & Exchange Board of India.
However, experts believe there are no reasons for long-term investors to panic. While the Indian markets have been weak because of the underlying fundamental reasons of high inflation and monetary tightening, which may dent the country’s growth prospects, Mukherjea said, “the price movements in the market in the last four-five months have not been so significant for patient long-term money to either consider a major exit or entry. The four-five per cent market movement that we have seen is of interest to hedge funds that are interested in short-term flip trades.”
The good news for investors is that a strong dollar is likely to be a temporary phase. Traders are shunning riskier assets like equities and are putting money in the greenback because of the Greek debt restructuring woes, concerns over global growth and weakness in commodities, according to Moses Harding, Head – Global Markets Group, IndusInd Bank.
The euro, which has the highest weight in the dollar index, has slipped 5 per cent against the greenback in the past month on worries the euro zone may not be able to raise interest rates ahead of the US, said Harding.
N Subramaniam, forex consultant at Pinnacle Forex, said, “At near zero interest rates, nobody wanted the dollar, but if Ben Bernanke ends the stimulus package and raises interest rates, it will strengthen. The short on the dollar and long on equities and commodities trade, which has been very prominent for the last two years, is unwinding.”
Once the QE2 ends, the cheap money flowing across different asset classes will dry up. Analysts say long-term funds have not been coming into India for the past few months, which may be the case in the near future unless fundamental factors improve.
But, how far will the dollar rise? Kwok says the dollar’s strength is only temporary because fundamentally the US economy continues to remain weak against the emerging economies. Harding expects the Dollar Index to surge to the 79 levels in the near term before cooling off.
For investors in the Indian stock market, the rising dollar is a cause of worry. With growth concerns across the world, foreign institutional investors are moving their money to safe havens. And in most cases, the safe haven happens to be the dollar.
The US Federal Reserve launched the QE2, its $600-billion bond buying programme, in November 2010 to prop up the ailing economy. With the programme expected to end in June, the liquidity conditions will become tighter. Fund managers, as a result, are already busy pruning their risky assets, including investments in Indian and other emerging market equities.
“Around 40 per cent of the money that enters India is hedge fund or hot money, which is interest rate and exchange rate-sensitive. There has been some flight of capital in anticipation of the QE2 ending,” said Saurabh Mukherjea, head of equities at Ambit Capital.
Besides the QE2 ending, sovereign debt woes emanating from Greece have also supported the dollar’s up move. Citigroup’s Hong Kong-based analyst Kelly Kwok said the dollar strengthened because whenever investors are risk averse, they sell other assets and buy the dollar.
As a result of these events, emerging market equities posted their first weekly loss last week (ended May 18) after seven consecutive weeks of inflows. According to an equity strategy report by Citi, emerging markets saw outflows of $1.6 billion for the week ended May 18, as investors sought to avoid risk.
No wonder then that the dollar and the Sensex’s inverse relationship has become very stark in the past three weeks. The Dollar Index, which measures the performance of the US dollar against the basket of six major currencies, has bounced from a recent low of 72.93 (April 29) to 75.62.
During the same period, the Indian benchmark Sensex has fallen 6 per cent. Foreign institutional investors (FIIs) have sold equities worth $1.74 billion (Rs 7,791 crore) in the Indian markets in May, according to data from the Securities & Exchange Board of India.
However, experts believe there are no reasons for long-term investors to panic. While the Indian markets have been weak because of the underlying fundamental reasons of high inflation and monetary tightening, which may dent the country’s growth prospects, Mukherjea said, “the price movements in the market in the last four-five months have not been so significant for patient long-term money to either consider a major exit or entry. The four-five per cent market movement that we have seen is of interest to hedge funds that are interested in short-term flip trades.”
The good news for investors is that a strong dollar is likely to be a temporary phase. Traders are shunning riskier assets like equities and are putting money in the greenback because of the Greek debt restructuring woes, concerns over global growth and weakness in commodities, according to Moses Harding, Head – Global Markets Group, IndusInd Bank.
The euro, which has the highest weight in the dollar index, has slipped 5 per cent against the greenback in the past month on worries the euro zone may not be able to raise interest rates ahead of the US, said Harding.
N Subramaniam, forex consultant at Pinnacle Forex, said, “At near zero interest rates, nobody wanted the dollar, but if Ben Bernanke ends the stimulus package and raises interest rates, it will strengthen. The short on the dollar and long on equities and commodities trade, which has been very prominent for the last two years, is unwinding.”
Once the QE2 ends, the cheap money flowing across different asset classes will dry up. Analysts say long-term funds have not been coming into India for the past few months, which may be the case in the near future unless fundamental factors improve.
But, how far will the dollar rise? Kwok says the dollar’s strength is only temporary because fundamentally the US economy continues to remain weak against the emerging economies. Harding expects the Dollar Index to surge to the 79 levels in the near term before cooling off.
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