Transcript newsletter - WordPress.com

October, 2010
CASTON CORPORATE ADVISORY SERVICES
-Global Risk News
-Indian Commerce
-Industry Circle- The WPI Mathematics
-Major Economic Indicators
Write to us at [email protected]
Global Risk News
World economy: Trial of strength
Will today's currency interventions hurt or help the
World economy.
TWENTY-FIVE years ago this week, the finance
ministers of America, Japan, Britain, France and
West Germany met at a swanky New York hotel
and agreed to push the dollar down. The "Plaza
Accord" laid out a package of co-ordinated policies.
The dollar duly fell, by more than 50% against the D
mark and yen by 1987. The deal is still seen as a
high-water mark of international monetary co
operation. The appeal of intervention is now rising
once again. But this time the trend is unilateral,
unco-ordinated and in one direction.
At its meeting on September 21st the Federal
Reserve worried aloud about uncomfortably low
inflation and made clear it was prepared to do more
to help the flagging recovery. The prospect of even
looser monetary policy pushed the dollar down
sharply: it dipped to its lowest level since March on a
trade-weighted basis.
A weaker dollar means stronger currencies
elsewhere--the euro hit a five-month high against
the dollar on September 22nd. A growing number of
countries are determined to stop their currencies
from rising. Japan sold about {Yen}2 trillion ($23.6
billion) on September 15th, its first foray into the
currency markets in six years, to stem a surge in the
yen that had pushed its nominal rate against the
dollar to its highest since 1995. It is not the only rich
country to target its exchange rate: in the 15 months
to June, Switzerland quadrupled its foreign reserves,
to $219 billion, in a bid to stop the franc from rising
too fast.
ADB raises Asia growth forecast
to 8.2 percent: The Asian Development Bank
raised its forecast for the region's economic growth
this year, crediting a rapid recovery in exports even
as it warned the risk of another recession in
Advanced countries has not completely receded.
The Manila-based development bank said Tuesday it
now expects developing Asia to grow 8.2 percent
this year compared with a projection of 7.5 percent
growth issued in April. The forecast, which doesn't
include Japan, covers 44 developing and newly
industrialized nations in Asia.
"Overall, developing Asia's recovery seems to have
taken firm hold," the ADB said in the report released
in Hong Kong. Increased consumer and business
spending as a result of government stimulus also
played its part in the recovery from the financial
crisis, it said.
In predictions for individual economies, the ADB
maintained its forecast as follows:
Country
Growth
Estimate
China
9.6%
Hongkong
5.8%
European Parliament passed a package of financial
services reform measures on Sept. 22 that legislators
are touting as a "landmark" that will "change the way
European and national regulators work to ensure the
stability" of the European Union financial system.
South Korea
6.0%
Taiwan
7.7%
The reform package, a response to the global
financial crisis of the past three years, establishes a
European Systemic Risk Board to deal with Europe
wide risks. It also established three European
supervisory authorities to supervise banks, securities
markets and insurance.
India
8.5%
Phillipines
6.2%
Singapore
14%
Pakistan
2.5%
Europe financing: EU Parliament
passes supervision reform The
The three pan-European authorities will be at the
center of "a tightly bound network of national
supervisors" to ensure a "smooth flow of
information on risks and consistent implementation
of European financial market rules."
Caston Mailinks
2
Indian Commerce
Rupee Rising Most in 15 Months
Damped by Current-Account Gap:
India : The biggest rupee rally in 15 months may
be coming to an end as a widening current account
deficit erodes the benefits of surging inflows of
overseas investment.
The shortfall in the broadest measure of trade
and investment flows probably tripled in the second
quarter from a year ago to $12.5 billion. The
currency, which has climbed 4.7 percent this month,
is expected to drop 1.2 percent by Dec. 31, a
separate poll shows. A wider deficit increases
pressure on Reserve Bank of India Governor
Dayyuri Subbarao to protect exporters and slow
rupee gains by buying dollars and delaying interest
rate increases. Kokusai Asset Management Co. said
any weakness may be temporary. The rupee survey
signaled the currency may resume its rally next year,
gaining 5.3 percent in 2011.
“The RBI has a tough task striking a balance between
inflows, exchange rate and controlling inflation,” said
Rahul Bajoria, a Singapore-based economist at
Barclays. “The deficit will increase the headwinds
and lead to a weakening of the rupee in the short
term.”
The rupee touched 44.835 a dollar this week,
its strongest level since May 4, after gaining 6
percent from an eight-month low reached on May
25.
Monsoon Rainfall in India Best in
T h r e e Ye a rs a s L a N i n a Ev e n t
Strengthens India’s monsoon, the main
source of irrigation for the nation’s 235 million
farmers, may be the best in three years after La Nina
weather increased precipitation in August and
September, according to the state-run forecaster.
The country received 911 millimeters of (35.9
inches) of rain from June 1 to Sept. 29, compared
with the 50-year average of 889.2 millimeters, the
best since 2007, data from the India Meteorological
Department show. That’s102 percent of the longperiod average And matches the agency’s forecast in
June. India’s northwest region, including the main
Wheat growing states of Punjab and Haryana, and
Uttar Pradesh, the top sugar cane grower, received
13percent more rainfall than normal, the bureau
said.
Showers in the central states, the nation’s biggest
producer of soybeans, were 4 percent above normal.
Rain over the southern peninsula was 18 percent
more than normal until yesterday and the eastern
states, which account for more than 70 percent of
the nation’s tea output, had a deficit of 18 percent,
data from the Forecaster show. India’s monsoon
season runs from June 1 to Sept. 30.
RBI amends bank norms for zero
coupon bonds The Reserve Bank of India
(RBI) said on Wednesday that banks should not
invest in zero Coupon bonds unless the issuer
provides for the accrued interest cost in a separate
fund. It said that the issuer should invest this fund in
liquid assets like Government bonds.
RBI noted in the circular that banks‘ investment in
long-term zero coupon bonds poses a credit risk as
the issuers are not required to pay any interest or
installments till the maturity of bonds. It also said
that banks should place conservative limits for their
investments in zero coupon bonds.
Govt changes FDI norms, policy to
update every 6 months: The
Government has issued a second circular clarifying
various aspects of The existing foreign direct
i n v es t m e nt ( FDI ) nor m s, i n l i n e wi t h t he
commitment that the policy would be updated every
six months, reports CNBC-TV18. The government
has cleared the air that FDI is allowed in partly paid
shares and warrants. However there will be a lock-in
for real estate shares from the date of receipt. In the
cash and carry business, the government has
removed trade cap. It has also permitted
downstream investment via internal accruals and
removed caps on intra-group trading. There is a big
relief among the non banking financial companies
(NBFCs) as the government has said that 100%
foreign-owned companies can set up subsidiaries in
India.
Caston Mailinks
3
Industry Circle:
The WPI Mathematics
The current series of Wholesale Prices Index
with a base y ear of 1993-94 reflects the
structure of economy nearly 15 years ago. In
order that the index adequately reflects the
current structure of the economy, a Working
Group for the revision of the index numbers
for wholesale prices in India was constituted on
December 26, 2003 under the Chairmanship of
Prof. Abhijit Sen, Member, Planning Commission.
Ever since the introduction of the WPI on a
regular basis, five revisions have taken place
introducing the new base years, viz., 1952-53,
1961-62, 1970-71, 1981-82 and 1993-94.
The New Items Tally
•2004-05: 676
All
•1993-94: 435
Commoditi
es
•2004-05: 102
•1993-94: 98
Primary
Articles
•2004-05: 555
Manufactur •1993-94: 318
ed Products
Index Calculation:
Selection of the Base year
Step I: Assigning of Price Relative to the commodity:
In determining the base year, the Working
Group followed the well established criteria
that the base year chosen should have the
desired properties of being a normal year and a
year for which reliable price and other required
Data available. The Working Group also
considered that the base year should be as
Recent a year as possible . Keepin g thes e
criteria in view, the Working Group proposed
P1/P0 x 100
2004-05 as the base year for the new
series of Wholesale Price Index.
S = represents the summation operation,
Step II: Calculation of WPI:
WPI= S (Ii x Wi) / S Wi
Where,
I = Index numbers of wholesale prices of a subgroup/group/ major group/ all commodities
Ii = Index of the ith item / sub- group/ group/ major
group.
Wi = Weight assigned to the ith item of subgroup/group/ major group.
New Series: 2004-05; Old Series: 1993-94
All Commodities
Primary
Articles
Fuel & Power
Manufactured
Products
Primary &
Manufactured
Products
New
Old
New
Old
New
Old
New
Old
New
Old
Weights(%)
100
100
20.11
22.02
14.91
14.22
64.97
63.74
24.31
26.94
Inflation:
2009-10
3.6
3.8
12.7
11.0
-2.1
-2.4
1.8
3.2
14.6
15.5
July, 10
9.8
10
18.9
14.9
13.3
14.3
5.4
6.2
13.6
7.8
Caston Mailinks
4
Major Indices
Indicator
Current Value
Previous
Value
Inflation
8.51
9.97
IIP
7.1
17.6
CRR
6.0%
6.0%
Repo Rate
6.0%
5.75%
91-Day T-Bill
6.27%
6.19%
10 Year G-Sec Yield
8.09%
8.09%
Forex Reserve
287.7
282.8
Dollar
44.9
47.06
Euro
61
59.5
Nifty
6029
5415
Nifty P/E
25.43
22.73
Gold $/oz
1312
1252
Silver $/oz
21.95
19.42
Crude $/Barrel
78.59
74.9
Caston Mailinks
Change
No Change
(
No Change
5