Sensex DiVeS on FII selling

The BSE Sensex dived 230 points on Thursday as foreign institutional investors continued their selling amid negative global cues and rising inflation concerns. The benchmark index closed at 16,052.70. The broader Nifty closed 1.5 per cent down, at 4,750.55.The Sensex touched an intra-day high of 16,264, but quickly dropped to a low of 15,993.8.FIIs were net sellers on Thursday for Rs 2,546.6 crore, while domestic institutions were net buyers for Rs 977 crore. Retail investors seem to have taken advantage of the situation and bought equity worth Rs 113 crore (on BSE) in the net.Since Monday the Sensex has fallen more than 4 per cent.

Inflation rate surges to 1.51%

The wholesale price inflation rose at its fastest pace in six months, with the annual Wholesale Price Index-based inflation rate surging 1.51 per cent during the week ended October 17, up from the previous week’s annual rise of 1.21 per cent.

Inflation was recorded at 10.82 per cent during the corresponding week of the previous year. The official WPI for ‘All Commodities’ for the latest week remained unchanged at previous level of 242.2 points.

Is gold a safe-haven asset?

Gold prices are going through the roof once again with each burst of boom seeing the yellow metal scale a new high.

The world might have abandoned gold standard but the Indian middle class continues to buy for social reasons. It is this practice more than anything else that explains the relentless gold rush in India.

Drain on forex reserves

Decried as wasteful and constituting a drain on our precious and scarce foreign exchange — gold is the second largest item on the Indian import basket — gold has serendipitously placed India in an enviable position with a conservative stock of 15,000 tonnes valued at roughly $480 billion that can hasten our growth if not catapult us into the ivy league of rich nations.

Gold standard may not be in vogue and not many are pining for its return but there are intelligent governments and central banks that are seeing the writing on the wall and building their war chests like never before.

China, for example, realised its mistake in putting all its eggs in one basket — the US dollar — and is now making amends by investing its fresh forex accretions in the yellow metal.

Our government has a much easier job on hand. It has to hard-sell its gold bond scheme so that the huge gold pile strewn across the country is put to better use and the drain on our precious forex resources is staunched.

Apart from checking the drain from forex reserves, popularising the gold bond scheme would inculcate the habit of holding gold in paper.In fact, a nation’s stock of gold should remain in official vaults. Therefore, besides popularising gold bond scheme for those sitting on gold, for the wannabe gold owners, exchange traded gold must be the norm.

Given the fact that rural folks swear by gold, this won’t be an easy task unless they are won over by explaining the danger of keeping their precious possession meant for the rainy day in their houses.

Paper gold must be sufficiently publicised and the services of the ubiquitous post offices roped in to sell them at the doorsteps of consumers.

Land has also been perceived as a safe-haven asset. The Chinese government and Indian entrepreneurs have been acquiring land abroad considered favourable for cultivation of crops not possible back home due to climatic and soil deficiencies or disadvantages. But any huge land acquisition by foreigners is bound to be resented by the locals. Industrial metals no doubt are precious but they don’t lend themselves to easy storage as gold does.

Besides, the scientific community can come up with substitutes. Shares briefly held themselves out as a safe haven asset which explained a rash of Sovereign Wealth Funds (SWF) before realisation dawned that they are not. In the event, gold remains the only safe haven asset for both individuals and governments.

In the event, gold remains the only safe haven asset for both individuals and governments.Crime for gold

In the hands of individuals, though, it is an unsafe safe-haven asset. Indeed, gold-related crimes figure high in the pecking order of crimes committed universally.

But this is no major handicap if only individuals are sold on the idea of investing in paper gold whose value keeps pace with its underlying asset.

While the fear factor can be played upon to effect transfer of gold from households to government lockers, promoting paper gold in lieu of jewellery may be a harder task. Paper gold might give safety and returns but not the glitter of the real thing.

The income-tax law does its bit towards promotion of paper gold by sparing it from wealth tax while imposing tax on gold per se. In capital gains tax, once again paper gold emerges trumps.

S.Muralidharan

(The author is a Delhi-based chartered accountant.)

Courtesy: The Business Line

BSNL awaiting Government decision on IPO

The Initial Public Offering (IPO) of State-owned telecom major Bharat Sanchar Nigam (BSNL) Ltd has been deferred.

Mr Kuldeep Goyal, Chairman and Managing Director, BSNL, said, “As of now, I do not think it is on the immediate radar.”

On being asked if the IPO would happen within this financial year, Mr Goyal said it would be difficult to comment on the issue.

“The Government has to take a decision on it. We are waiting for the decision,” he added.

The government would need to time the listings of various public sector undertakings, he said.

For BSNL, there is no particular timelineas of now, he added.

BSNL had approached the Government with a proposal to divest 10 per cent stake to the public in a bid to raise about Rs 50,000 crore. The company was hoping to use the funds for expansion.

Mr Goyal was speaking at the sidelines of the launch of BSNL’s pre-paid broadband services in Karnataka.

Customers must have BSNL land line connection to avail themselves of this service. The service would be extended to other circles by the end of the year, BSNL said. The company has 4.3 million broadband customers, it said in a statement

Courtesy:The Business Line

When will the 'healthy' correction take place?

The Indian equity markets continue to power on. On Monday, the stock indices got a major boost in the form of industrial production numbers, which came in at a 22-month high, and buzz that the warring Ambani brothers may be headed for a settlement in the bitter legal tussle over supply of gas. With the Sensex atop the 17,000 market and valuations certainly not cheap as compared to six months ago, will the market see a correction — something that everybody is terming ‘healthy’? Analysts think so but with the usual caveat — liquidity is the joker in the pack you can’t predict and so long as that remains robust, you never know. View from the street “There is still a lot of liquidity flowing into India,” said Sonam Udasi of brokerage firm Brics Securities. “It’s still looking attractive though our view is cautious on the market.” “While there is enough money waiting on the sidelines, people would prefer to see some correction — even if it’s only a 5-10% correction — and that’s the broad voice what we have heard historically,” said C Jayaram, ED of Kotak Mahindra Bank. He added that, if indeed a correction took place in the market, it won’t exceed 5–10% because of the amount of money waiting on the sidelines to get invested. Jayaram, however, was concerned with the market rally and said stocks had gone up more than the expectation of a recovery in the companies’ actual businesses. “At these levels it becomes very difficult to justify the valuations particularly in many of the frontline stocks,” he said. “I would also suspect that the market has factored in a lot of positives in earnings upgrades as well. Some of those may indeed happen but I would also think there could be some cases in which upgrades or improvement in earnings may not be as much as the market thinks it will.” “I would be cautious about whether earnings upgrade in many of these cases is actually justified. If you put the whole thing in a pot then I would argue that there is a larger case for disappointment right now rather than for any sort of big positive,” Jayaram said. However, almost every analyst has been for long echoing the correction-is-healthy call but the market continues to surprise. Information technology: “One or two big concerns about IT is that it’s a question of in terms of visibility as to how clear is it particularly for the smaller and midcap IT firms,” Jayaram said. “More immediately, the question of the rupee strengthening seems to be a feature right now and unless you start to see some reversal of that, honestly I can’t think of too many reasons to be particularly positive about IT right now.” Capital goods: “Within the sector, we have an overweight on the transmission and distribution (T&D) equipment space, on companies which are into project execution. We are positive on Jyoti Structures, Kalpataru Power Transmission all these companies. We are not so positive right now on the utility space in the near term,” said Udasi. Metals: “Within the metal space, we are generally positive on the resource companies, so we may not be so positive on the commodity aspect as such because it is too cyclical but on whoever owns the resource,” Udasi said. “So we are positive on Hindustan Zinc with a long-term view. Whoever owns the raw material on this rather than the metal itself.” Source: Money Control

Gold ETFs: High Volume shows firm recap

Record gold prices may be deterring jewellery buyers, but they are triggering trading interest in Gold Exchange Traded Funds (ETFs). All gold-ETFs have seen volumes double in the last two days. GoldBEeS, which saw an average of 22,000 units traded last week, has seen a surge to 42,000 trades in the last two days.

However, Indian investors who bet on gold-ETFs a month ago have not participated actively in the recent rally. Their returns have been depressed, capped by the rising rupee. Despite the 5 per cent run up in international gold prices in the last one month, prices for domestic gold-ETFs are where they were last month. GoldBEeS, Benchmark Mutual Fund’s gold-ETF, which closed flat in Wednesday’s trade, has been hovering around Rs 1,570-levels for the last one month.

The spurt in gold prices in the international markets, from $1,000 last month to $1,053/ounce, follows the weakness in dollar on fears of a fall in the currency’s value. However, this has lent strength to the rupee, thus muting returns for investors. GoldBEeS, Goldshare (UTI Mutual Fund) and Relgold (Reliance Mutual Fund) all are below their last month highs. When gold crossed $1000 on September 8, all these funds reported new highs.

Source: The Business Line