Wednesday, January 28, 2015

Market Mantra
Reliance Capital Ltd recommended around Rs.474, today touched Rs.480.75 in the BSE, before some profit booking set in. In view of company's improved performance and being a share from Anil Ambani group, the investors are suggested to buy and hold the scrip for some good returns in the short term. 
Today's Call: Buy First Source Solutions Ltd at Rs.29-29.50, T -Rs.35, Sl--Rs.27. This is a buy and hold scrip. The ace investors, Rakesh Radheshyam Jhunjhunwala, Goldman Sachs India Fund Ltd and ICICI Bank Ltd holds 3.76%, 1.27% and 4.85% of the shares of the company, respectively. Recently, Mr.Jhunjhunwala has reportedly hiked his stake in Polaris Consulting & Services Ltd and this could be in his radar too........
MRPL Today touched Rs.53.60, intra-day and is now trading at Rs.53. Those who do not want to take high-risk of the oil and gas sector can book some profits in the counter.
The Nifty is expected to meander around the current ranges till the resistance zone of 8950-9000 is cleared. 
Why iron ore won’t rebound any time soon
Photo: Live Mint
[Editor: On the contrary I ask CNBC.Com's Leslie Shaffer (Yoga teacher); as why every analysis has to exclude India (and talk only of China, when it comes to steel), which is the fourth largest steel producer in the world? The Financial Portal, Live Mint writes on January, 04 2015:
India will import nearly 15 million tonnes of iron ore in 2015 as higher domestic prices amid a supply shortage push top steel makers to import more, said industry executives. Goutam Chakraborty, analyst with brokerage Emkay Global Financial Services, said the current price of 62% Fe grade iron ore is about Rs.4,000 per tonne in India; the same grade is available internationally at around Rs.3,500 per tonne. He added that the cost of iron ore is even higher in India in case of lumps and is close to Rs.4,200-4,500 per tonne for a 62% Fe grade. Seshagiri Rao, joint managing director and group chief financial officer of JSW Group, added that while international prices have fallen almost 40% since the beginning of the fiscal, in India, prices have actually risen.Bloomberg data says the price of 62% Fe grade iron ore fines imported into China has fallen from $110.1 per tonne as on 1 April 2014 to $66.4 per tonne as on 25 December 2014, a fall of almost 40% so far this fiscal. In contrast, ore price at e-auctions in India has risen from Rs.2,700 per tonne in April to Rs.3,140 per tonne in November. State-owned miner NMDC Ltd cut prices in December for the first time in 2014, said Chakraborty of Emkay in a 2 January report. Data on the quantum of the price cut was not available.
Leslie Shaffer, CNBC
Meanwhile, there were media reports that the domestic Iron Ore Production, which recorded a marginal growth to touch 140 million tonnes (mt) in 2014, is expected to touch 150-155 mt in 2015. This is possible as more mines would start operations in Karnataka, Goa and Odisha in the coming months. The domestic iron ore production is likely to see a modest 10 per cent growth this year. The mining industry is looking forward to some positive developments in 2015. The renewal of leases in Goa, formation of new government in Jharkhand, issuance of clearances and permits in Odisha and restarting of mines including auction of Category-C mines in Karnataka are expected in 2015. With the global prices of iron ore hitting their low in the recent months, the steel industry is likely to continue their imports in 2015. India is expected to produce up to 130 million tonnes per annum (mtpa) of iron ore as against a demand of 140 mtpa largely due to weaker output from Karnataka, Odisha and Jharkhand. Domestic output has fallen due to restrictions imposed by the Supreme Court to curb illegal mining.

So, on what basis,  Leslie Shaffer comes up with such blanket forecasting on Iron Ore? And when will these Western Analysts get over with their China-hangover?]
Photo: Business Standard
Economists may teach that low prices and declining demand encourage producers to decrease supply, but the iron ore industry appears to have skipped class that day.

"The combination of a further increase in global iron ore supply this year and only subdued demand growth suggests iron ore prices will continue to drift lower," said Caroline Bain, an analyst at Capital Economics, in a note Monday. She forecasts iron ore prices at $60 a tonne by year-end, with risks to the downside. Iron ore touched a more than five-year low Monday of around $63.30 a tonne, although some forward contracts are already pricing it under $60.

Output has picked up over the past few years, encouraged by expectations China demand would continue to post strong growth and by low production costs in Australia and Brazil, she said. She noted Rio Tinto and BHP Billiton put their average production cost in Pilbara, where most of Australia's iron-ore production is located, at around $25 a tonne, compared with 2010-13 average market prices at $145 a tonne. Even at current prices, these producers are still profitable, Bain noted. Australia is the world's second-largest iron-ore producer after China.

Despite 2014's around 50 percent decline in iron ore prices, the big four producers -- Vale, Rio Tinto, BHP Billiton and Fortescue – continue to expand production and other companies are also bringing projects on line this year, she said, forecasting Australian production will rise 6 percent this year, although that's down from 2014's 20 percent rise.

Don't count on China

At the same time, despite China producers' higher costs and lower ore grades, production there isn't likely to see much slowdown, especially as many steel plants have "vertically integrated" operations, owning mines nearby, Bain said. Closures on the mainland are likely to focus on less efficient operations, leading to a leaner and meaner industry there, she said.

 "The multinational producers will be only partially successful in their bid to oust higher-cost producers globally and oversupply will continue to weigh on prices," she said. At the same time, China's iron ore usage will stagnate at best, hit by a combination of high inventories and lower demand to use the metal as part of financing deals, she said.

Goldman Sachs also expects iron ore producers won't be able to count on China for growth, noting it's become a mature market.

"The decade-long love affair between China and iron ore is cooling. Chinese steel consumption has increased to unsustainable levels and is bound to decline," it said in a note Friday. "Significant overinvestment to date will ensure that the market is well supplied."

It expects a "long war of attrition" will be needed to balance the market, cutting its long-term price forecast by 25 percent to $60 a tonne.

The oil effect

Falling oil prices are also set to weigh on iron ore prices, as they result in "substantial cost reductions", and commodity prices are likely to fall to meet these new lower levels, Citigroup said in a note Monday.

It's also concerned about oil-fueled deflationary pressures affecting commodity demand. 

"Falling prices increase the real cost of debt repayments and could see increased defaults. This not only affects direct commodity demand, but also drives lower inventories and threatens commodity financing trade," it said, noting that falling commodity prices also leave companies with little incentive to build up inventories.

In a note earlier this month, the bank cut its 2015 iron ore price forecast to $58 a tonne from $65.

Courtesy: CNBC
China eliminates 31.1 million tonne of steel capacity in 2014
Photo: Business Spectator
27 Jan, 2015: BEIJING: China has eliminated 31.1 million tonnes of steel production capacity last year, higher than expected, a senior official of the industrial ministry said on Tuesday, as Beijing seeks to ease overcapacity and improve air quality. 

China has also removed 81 million tonnes of cement production capacity, Mao Weiming, vice minister of the Ministry of Industrial and Information Technology, told at a presser in Beijing. 

China, the world's largest steel producer, earlier set the target of 27 million tonnes for the steel sector. 

Separately, Hebei province, the country's biggest steel-making region, has closed as much as 15 million tonnes of steel production capacity last year, meeting its target, but aims to shut only 5 million tonnes this year. 


Tuesday, January 27, 2015

Which Company Will You Choose From Below; For Investment Purpose??
Reliance Capital Ltd (Rs.475.45) has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, among others. Reliance Capital, a part of the Reliance Group, is one of India’s leading private sector financial services companies. It ranks amongst the top private sector financial services and banking groups, in terms of net worth. The Company is a constituent of CNX Nifty Junior and MSCI India.

Another Japanese financial services giant, Nippon Life, recently signed an agreement with Reliance Capital Asset Management, a part of Reliance Capital, to raise its stake in the company from 26% to 49% in two or more tranches over the next two years. Or in other words, Reliance Capital Ltd (Rs.475.45), financial services arm of industrialist Anil Ambani-led business conglomerate Reliance Group, is likely to soon divest more equity in its life insurance venture to its foreign partner Nippon Life. Nippon Life has a 26% stake in Reliance Life, the life insurance arm of Reliance Capital. 

It had reported 20% rise in its second quarter net profit at Rs.217 crore, helped by robust growth in mutual fund, commercial finance and general insurance businesses. Total income rose by 12% to Rs.2,084 crore for the quarter ended 30 September. 

Besides, Reliance Capital also plans to rope in foreign partners for its health insurance and general insurance ventures. Taking an ordinance route, the government has permitted up to 49% foreign investment in insurance. 

As it awaits final Reserve Bank of India (RBI) guidelines to apply for a universal banking license, Reliance Capital has also roped in Sumitomo Mitsui Trust Bank of Japan as a long-term strategic partner. Very recently, the shareholders of Reliance Capital Ltd, approved the preferential allotment to Sumitomo Mitsui Trust Bank, Limited of Japan.

As part of the agreement, Sumitomo Mitsui Trust Bank will be taking an initial 2.77 per cent strategic stake in Reliance Capital amounting to Rs.371 crore (US$ 58.4 million) through preferential allotment, with a lock-in period of one year. The investment is being made at Rs.530 per share.

Sumitomo Mitsui Trust Group is the fourth largest bank in Japan (in terms of market capitalization and corporate loans) and Japan’s largest financial institution managing assets of US$ 682 billion with assets under custody of US$ 1.8 trillion as of September 2014.
U.S. crude oil inches higher after mixed data, API report ahead
[Editor: It was expected!! I have mentioned about that several times in my earlier posts and ridiculed those Hedge Fund Managers, who were speaking of crude oil, further nosediving. Meanwhile, what is interesting to note, is that The Wall Street Journal wrote on, 27 January, 2015: 
In the short term, a rebound in prices, which have fallen around 55% since last summer, seems unlikely, analysts say. The oil market looks fundamentally weak despite initial signs that oil prices may be stabilizing around $47 to $51 a barrel, analysts at Energy Aspects said. “Inventories are building and on top of a high base which will continue to weigh on the term structure of Brent and WTI,” Energy Aspects said.
The question is who are these analysts and on what basis, they are forecasting crude oil prices, based on apparent factors? I have seen most of these "so-called" are fickle and often go wrong.  This time also I believe they would be way off the mark. The crude oil is now trading at $46.08 up 2.06%. According to my assessment, the crude oil will now slowly move towards $60 in the coming days]
Jan 27, 2015:  West Texas Intermediate oil futures inched higher on Tuesday, as investors digested a mixed bag of U.S. economic data.

On the New York Mercantile Exchange, crude oil for delivery in March tacked on 28 cents, or 0.62%, to trade at $45.43 a barrel during U.S. morning hours. Prices held in a range between $44.82 and $45.69.

A day earlier, New York-traded oil futures hit a low of $44.35 a barrel, a level not seen since March 2009, before settling at $45.15, down 44 cents, or 0.97%.

The U.S. Commerce Department said new home sales climbed by 11.6% to a seasonally adjusted 481,000 units last month, above expectations for 450,000. 

On Monday, OPEC’s secretary-general, Abdalla Salem el-Badri, said that oil prices appear to have bottomed out and could be poised for a rebound. But Mr. el-Badri also said that OPEC intends to stick to its decision to keep output stable.

While some of the comments seem bearish, they may represent a change of tone, Simmons & Co. International said Tuesday in a research note. It is “tough to draw strong conclusions,” but this could be a sign that Saudi Arabia is at least willing to join a coordinated response with other producers, something it had adamantly opposed, it said.

“A lot more guys are saying these guys are going to capitulate soon. I don’t necessarily think that’s true,” said Kyle Cooper, managing director of research at IAF Advisors, a Houston consulting firm. “But there definitely is an internal battle going on.”

Estimating that the 93 million barrels a day global oil market is currently oversupplied by 1.3 million barrels a day, UBS cut its forecast for the average Brent price this year to $52.50 a barrel from $69.75, and for WTI to $49 a barrel from $64.75.

The bank expects prices to take as long as 60 months to recover to pre-collapse levels. As the “process of correction is clearly under way with significant cuts to capital expenditure already being announced,” the bank sees both contracts rebounding to over $60 a barrel next year, with Brent reaching an average price of $90 a barrel by 2018.

Nymex reformulated gasoline blendstock for February, the benchmark gasoline contract, fell 0.8% to $1.3061 a gallon.

February diesel lost 1.72 cents, or 1.1%, to $1.6226 a gallon.

Crude-oil prices have tumbled since midsummer and again in the fall after OPEC decided at its November meeting not to cut its output despite a combination of a global supply glut and lackluster demand.

Sources
Reliance Capital expects turnaround in insurance business in 2015 
Firm will continue with its ongoing policy of exiting from the day-to-day operations of non-core businesses, says CEO
Reliance Capital is also likely to soon divest more equity in its life insurance venture to its foreign partner Nippon Life (which currently holds 26% stake). Photo: Abhijit Bhatlekar/Mint
Mumbai, January 04 2015: Confident about further growth in its mutual fund and securities market businesses, financial sector conglomerate Reliance Capital Ltd expects a turnaround in its life insurance business as well in 2015. 

Besides, the group should record a faster growth in its general insurance venture this year, Reliance Capital chief executive officer (CEO) Sam Ghosh said. He said the 2014 has been very good for Reliance Capital in areas like mutual funds and brokerage businesses, although growth was somewhat stagnant in the life insurance segment. 

I expect the growth trends to continue in the mutual fund and broking businesses, while life insurance should see an uptick. Besides, general insurance should also see faster growth in 2015,” Ghosh told PTI in an interview. 

Speaking about the business outlook for 2015, Ghosh said there is “a lot of positivity around and the same should result in good growth in commercial finance, SME finance and other businesses as well”. 

Ghosh also said Reliance Capital would continue with its ongoing policy of exiting from the day-to-day operations of non-core businesses and there could be more divestments of such assets in 2015. However, it may not be complete exits from such ventures and the group would rather focus on exiting the management of such ventures while retaining some as financial investments, he added. 

On the overall economy, Ghosh said the government is doing all the right things and therefore the economy should prosper and the same would reflect in the markets as well. “The services sector is already seeing an uptick and the manufacturing is also expected to grow going forward,” he said. 

Reliance Capital, financial services arm of industrialist Anil Ambani-led business conglomerate Reliance Group, is also likely to soon divest more equity in its life insurance venture to its foreign partner Nippon Life (which currently holds 26% stake). 

Besides, Reliance Capital also plans to rope in foreign partners for its health insurance and general insurance ventures. Taking an ordinance route, the government has permitted up to 49% foreign investment in insurance. 

Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, among others. 

It had reported 20% rise in its second quarter net profit at Rs.217 crore, helped by robust growth in mutual fund, commercial finance and general insurance businesses. Total income rose by 12% to Rs.2,084 crore for the quarter ended 30 September. 

As it awaits final Reserve Bank of India (RBI) guidelines to apply for a universal banking license, Reliance Capital has also roped in Sumitomo Mitsui Trust Bank of Japan as a long-term strategic partner.

Courtesy: Live Mint
MARKET MANTRA
Nifty which opened today at 8871.35 made an intra-day low of 8825.45 and a high of 8878.20. After that Nifty is now trading in a tight range of 15-20 points and is currently trading at 8835.95 up marginally by 0.35 points. As long as Nifty is above 8600, the bulls do not  have to worry much. The focus has already shifted to good small and mid cap counters. 
Today's Call: Buy Reliance Capital Ltd at Rs.474, for a short term target of Rs.545. Recently, there were some media news that, Japan-based Sumitomo Mitsui Trust Bank (SMTB) has acquired a minority stake in the Anil Ambani-led Reliance Capital Ltd (RCL) – part of the Reliance Group – for Rs.371Cr. The investment is being made at Rs.530 per share, which is much higher than the CMP of Rs.474. Sumitomo Mitsui Trust Bank (SMTB) is the largest bank in Japan (in terms of market capitalisation and corporate loans) and largest financial institution in the country, managing assets of $682 billion with assets under custody of $1.8 trillion as of September 2014. Moreover, today Max India Ltd (Rs.487.55) is up more than 7%.Reliance Capital Ltd has interests in asset management and mutual funds, life and general insurance, commercial and home finance, stock-broking, wealth management services, distribution of financial products, asset reconstruction, proprietary investments and other activities in financial services.
Meanwhile, Jindal Saw Ltd is finding resistance to cross Rs.87. Therefore, the short term traders are suggested to book profits around Rs.86.50, in any intra-day bounce and wait for the stock to close above Rs.87.10, for taking fresh entry. However the long term investors can hold the scrip with a SL of Rs.81.70.
MRPL today touched Rs.53 and is now trading at Rs.51.40. The scrip should slowly move towards Rs.60-62, in the coming days. 
Use every rise in Suzlon Energy Ltd (Rs.15.60), to exit the counter, till the situation becomes more fluid. With so much debt on the books and then selling of profit making overseas subsidiary, does not augur well for the company. 
Accumulate Rohit Ferro Tech Ltd (Rs.7.80) on all declines for some super-duper returns in the short to medium term. Target: Rs.12.
Dumpwatch: Low Ruble Prices Bringing Russian Steel To India's Shores 
Jan. 26, 2015: First it was China, now India's steel makers face a similar "cheap imports" threat from a neighbor, this time Russia. The depreciation of the Russian ruble against the US dollar has started to have its effect felt in India's steel sector.

Since the last two months, even as steel majors have watched the developments from the sidelines, the steady decline in the ruble's value has led to local players increasingly importing Russian alloy. It is Russia as the flavor of the month, much to the consternation of Indian steel companies, and the situation is not going to improve anytime soon.

To combat the trend, India's steel ministry has proposed an immediate upward revision of import duties on steel products such as long products and hot-rolled coil. The logic is "to safeguard the TMT/rebar industry."

The minister has told the finance ministry to increase import duties on non-alloy long products, HR/CR coil and stainless steel products would face a hike to 10%. The ministry's logic is that excess steel capacity in China and Russia, among other importers, is leading to dumping in India.

A report by Bloomberg quoted JSW Steel's Mumbai-based Senior Vice President, Sharad Mahendra, as saying deals for steel imports from Russia have been struck in the past month and "such purchases will only increase," since Russian companies are able to offer heavy discounts on hot-rolled steel prices.

All of this has raised a question mark about India's domestic steel output. Steel companies have already raised output targets for the year ending March 31, thanks to the government's Make In India campaign. All of that could change now, with such cheap imports coming into the country, analysts say.

Already, in an effort to counter cheap imports, major steel producers have reduced prices on finished products by about 4% in January as metal prices across the world continued to trend downward.

The move is aimed at countering cheaper imports from China and Russia and to arrest a demand slump in the domestic market, industry sources said.

What is now worrying Indian producers is that cheap Russian imports were also threatening to take over a portion of India's traditional export markets in the Middle East such as Iran.

Courtesy: Seeking Alpha
Hedge Funds Bet Oil Will Fall Further
[Editor: The time has come for some of these Hedge Funds to go Bust, if they still think that the Crude Oil ($ 46.87 per barrel) will touch $30 per barrel. As mentioned in my earlier write-up, I feel the price of Crude Oil has more or less bottomed out  and a slow rise is in the offing; especially  when after a long time EUR/USD is  at 1.1264 up 1.06%. The point to be noted is that: when the EU is going for QE and there are talks of Indian Growth Story (much rosier than  China), the fall in Crude Oil is just an aberration, which will soon get corrected. Once the Crude starts to tread north, most of the other commodities might also follow the vector....] 
Jan 27, 2015: Hedge funds boosted bearish wagers on oil to a four-year high as U.S. supplies grew the most since 2001.

Money managers increased short positions in West Texas Intermediate crude to the highest level since September 2010 in the week ended Jan. 20, U.S. Commodity Futures Trading Commission data show. Net-long positions slipped for the first time in three weeks.

U.S. crude supplies rose by 10.1 million barrels to 397.9 million in the week ended Jan. 16 and the country will pump the most oil since 1972 this year, the Energy Information Administration says. Saudi Arabia’s King Salman, the new ruler of the world’s biggest oil exporter, said he will maintain the production policy of his predecessor despite a 58 percent drop in prices since June.

“There’s been a rush to call a bottom,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Jan. 23. “The fundamentals are still stacked against a rebound.”

WTI rose 50 cents, or 1.1 percent, to $46.39 a barrel on the New York Mercantile Exchange during the CFTC report period. The U.S. benchmark fell 44 cents, or 1 percent, to $45.15, the lowest settlement since March 11, 2009. Brent slipped 63 cents, or 1.3 percent, to end the session at $48.16.

Salman Bin Abdulaziz Al Saud ascended to the throne after King Abdullah died last week. The kingdom pumped 9.5 million barrels a day in December as members of the Organization of Petroleum Exporting Countries exceeded their 30 million-barrel daily target for a seventh month.

U.S. Production
“I don’t see any major catalyst from either the supply or demand side that will send prices higher this year,” Stewart Glickman, an equity analyst at S&P Capital IQ in New York, said by phone Jan 23. “It looks like $50 crude is the new reality that we’ll have to get used to.”

Production in the U.S. will be slow to decline as improvements in drilling technology boost well output even as companies drill less. Oil production per rig from new wells in the Bakken in February will be double what it was three years ago, the EIA said Jan. 12.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

Drillers idled 49 U.S. oil rigs last week, bringing the total to 1,317, the lowest level in two years, Baker Hughes Inc. (BHI) said on its website Jan. 23. It was the seventh weekly decline.

Short Options
“The fundamentals are terrible,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by phone Jan. 23. “The drop in the rig count will have a limited impact. We’re going to see huge builds during the first quarter worldwide.”

Short positions in WTI increased by 6,262 contracts to 94,203 futures and options in the week ended Jan. 20, CFTC data show. Long positions dropped 0.3 percent. Net-long positions fell 3.3 percent to 216,704. Producers increased net-short positions by 7,623 to 132,143 contracts, the most since December 2011.

In other markets, bullish bets on gasoline advanced 5.8 percent to 39,418 contracts, the first gain in five weeks. Futures increased 3.5 percent to $1.3128 a gallon on Nymex in the reporting period.

Pump Prices
Retail gasoline, averaged nationwide, slid to $2.033 a gallon Jan. 25, the lowest since March 2009, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

Bearish wagers on U.S. ultra low sulfur diesel increased 2.3 percent to 29,943 contracts, the most since the period ended Nov. 4. The fuel slipped 0.4 percent to $1.6266 a gallon in the report week.

Net-short wagers on U.S. natural gas decreased 32 percent to 11,967 lots. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

Nymex natural gas dropped 3.8 percent to $2.831 per million British thermal units during the report week.

“We’ve been here before,” said Wittner. “There have been points when it looked like it was stabilizing only to then take another leg lower.”

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Courtesy: Bloomberg.com 
RBI rate cut effect: FIIs pump Rs.21,000 Cr into Indian Markets in January
Photo: IBN Live
January 26, 2015: Overseas investors have pumped in a staggering over Rs 21,000 crore in Indian capital markets since the beginning of the month owing to easing inflation and rate cut by the Reserve Bank of India (RBI).

Foreign institutional investors (FIIs) have bought shares worth Rs 5,992 crore ($977 million) until January 23, while bought debt worth Rs 15,336 crore ($2.5 billion) taking the total investment to Rs 21,328 crore ($3.45 billion), latest data with Central Depository Services Ltd (CDSL) showed.

These investors got re-christened as FPIs or foreign portfolio investors last year under a new regulatory regime that promises to make it easier for them to invest in India.

Market analysts attributed the huge inflow to low inflation levels and rate cut by the RBI. The central bank on January 14 surprised market participants with a 25 basis point rate cut.

Besides, foreign investors are betting on Indian capital markets on expectations of more rate cuts by the apex bank.

In 2014, the net investment by overseas investors into the debt markets was Rs 1.16 lakh crore, while in the equities it stood at Rs 98,150 crore. Overall, net investment by foreign investors stood at Rs 2.58 lakh crore in 2014.

Courtesy: First Post
Reserve Bank of India may ease rates further: Chief Economic Advisor Arvind Subramanian
Photo: Business Standard
DAVOS, 26 Jan, 2015:  Lauding RBI's role in helping bring down inflation, Chief Economic Advisor Arvind Subramanian said the central bank may further ease the interest rates as improvement on price front has opened the space for monetary easing. 

"The way I view is that RBI has a mandate to bring down inflation and keep it low and given the inflation has been coming down, that opened up the space for monetary policy easing and RBI has begun that," said Subramanian, who was here to attend the World Economic Forum Annual Meeting. 

"The RBI's own statement says that this is not just a change in rate, but a shift in its monetary policy stance provided inflation remains low and there could be more easing," Subramanian told the media in an interview at the WEF summit that ended this weekend. 

A number of business leaders and bankers, including ICICI Bank's Chanda Kochhar and Kotak Group's Uday Kotak, also said at the WEF that the RBI may look at further easing of rates as inflation appears to be under control. 

Subramanian also said the government is committed to making sure that the taxation is not an extra burden for foreign investments of all kinds. 

On ease of doing business, he said, "There are also issues like land laws, labour laws and reforms have been happening on those fronts. 

"We will have to wait for the World Bank to measure how these efforts have helped in terms of ranking. Besides, the real measure will be seen in terms of actual investments that would flow in." 

On January 15, the RBI had cut the policy rate by 25 bps a few weeks ahead of its regular monetary policy meeting, which is scheduled to be held on February 3. 

RBI Governor Raghuram Rajan lowered the benchmark repurchase rate to 7.75 per cent from 8 per cent, the first reduction since May 2013. 

The RBI rate cut follows decline in inflation as well as the commitment of the government to stick to the fiscal deficit target of 4.1 per cent of the GDP in the current financial year. 

Monday, January 26, 2015

Oil Wobbles on OPEC Comment
Secretary-General of OPEC Says Prices May Have Hit a Bottom
An idle pump in Illinois, U.S. With oil prices near a 51/2-year low, oil companies are beginning to slow drilling operations in the country. PHOTO: GETTY IMAGES
Jan. 26, 2015:  Oil prices wavered between gains and losses Monday as traders weighed potentially bullish comments from the Organization of the Petroleum Exporting Countries against ongoing concerns that the market is oversupplied.

Oil prices have plunged more than 55% since mid-June on concerns about ample supplies and tepid demand. OPEC decided in November not to lower its output quota, sending prices tumbling lower on the expectation that without intervention from OPEC, it could take months or years for the global glut of oil to shrink.

OPEC Secretary-General Abdalla Salem el-Badri said in an interview with Reuters on Monday that with prices between $45 and $55 a barrel, “I think maybe they reached the bottom and will see some rebound very soon.”

Prices, which had been trading in the red overnight, turned positive on the news.

U.S. oil for March delivery rose as high as $46.11 a barrel, up from $45 a barrel earlier in the day, on the New York Mercantile Exchange.

Prices recently traded down 21 cents, or 0.5%, at $45.38 a barrel.

Brent, the global benchmark, rose from $48 a barrel to $49.29 a barrel after the interview was released. Prices recently fell 37 cents, or 0.8%, to $48.42 a barrel on ICE Futures Europe.

At lower prices, Mr. Badri said, producers won’t invest in new output and supplies will shrink.

“Maybe we will go to $200 if there is a real shortage of supply because of the lack of investment,” Mr. Badri told Reuters.

However, he said, “it will take another 4-5 months” before OPEC members talk about a change in policy.

“We will see how the market behaves at the end of the first half of 2015,” he said.

Mr. Badri’s comments “suggest that OPEC will continue to monitor the oil markets and adjust strategy as the market evolves, but do not necessarily imply any action is imminent,” said Simmons & Co. International in a note.

Earlier Monday, prices fell to fresh lows on concerns that the outcome of the Greek election would increase uncertainty for Europe’s economy. Saudi Arabia, OPEC’s top producer, also reaffirmed that its new king won’t alter the country’s policy on maintaining its oil output, weighing on prices.

Gasoline futures recently traded down 1.55 cents, or 1.2%, at $1.3324 a gallon.

Diesel futures rose 1.03 cents, or 0.6%, to $1.6570 a gallon.

Suzlon Energy Ltd: Exit
CMP: Rs.14.86.
Photo: Financial Express
Suzlon Ltd which bought Senvion SE for EUR 1.5 billion way back in 2007, has been forced to give up the German firm at a loss with a sale to private equity firm, Centrebridge Partners LP fetching him just EUR 1 billion. While Tulsi Tanti, who founded Suzlon Energy to make wind turbines, may justify the valuation and claim there’s a gain on the currency, it’s a fact that global energy majors were valued more highly in mid-2014.

Suzlon’s bankers, however, will be a relieved lot because it was evident that the firm, which had piled up a debt of R17, 323 crore, was becoming increasingly vulnerable to a bankruptcy. Already the Pune-headquartered firm had defaulted on a $209 million repayment in 2012 and bankers had restructured R9,500 crore worth of borrowings. 
Now even after Rs.6,000 crore of the Rs.7,200 crore that the Senvion sales fetched is returned to the banks, the firm will remain hugely over leveraged. 

The investors who have still not booked profit in the counter (as it touched all my short term targets: Rs.15 and Rs.17) are suggested to exit the stock of Suzlon Energy Ltd (Rs.14.86), lock, stock and barrel and enter more fundamentally strong companies like Jindal Saw Ltd (Rs.84.60). 

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Will the Crude Oil Prices Move-up in the Short Term: Fundamental and Chartical (Technical) Views
The American consumer got a surprise gift this holiday season: the dramatic collapse in the price of oil. The Crude Oil prices have nosedived in the past few months. The spot price of Brent crude reached $115 a barrel in June, 2014 and was above $100 a barrel as recently as September. Since then, it plunged from north of $100 a barrel to less than half that level now (< $50 a barrel). 
Oil prices have been, the victim of a growing surplus brought on by booming U.S. production and weaker-than-expected demand. As prices have careened toward six-year lows, the market has become more volatile. That has given investors opportunities to score big profits by betting on further declines--some traders say the market has fallen too far, too fast—creating the potential for an equally sharp rebound.


The trend has sent US gas prices down to a national average of under $2.20 per gallon, with rates under $2 per gallon in some states.

The benefits of cheap gas are widespread, though the price declines are more of a mixed bag for economies in U.S. states with large energy sectors.

The collapse of crude oil over the last year is one of the biggest asset crashes since the Great Recession and therefore, where there’s crisis, there’s often opportunity.

Many money managers are staying on the sidelines, searching for clues that could mark a turning point for the market. These can range from economic growth forecasts for major oil consumers such as China, to retail gasoline prices and auto sales in the U.S., which could drive future demand. Lately, the market has become particularly focused on a survey of drilling rigs operating in the U.S. that is released each Friday by oil-field-services company Baker Hughes Inc., which can be an early indicator of how quickly production will grow in the future. The number of oil rigs operating in the U.S. has fallen for six weeks in a row.

From a historical perspective, this collapse ranks a bit smaller than the crash in 2008. During that period, crude dropped from $140 per barrel to $40. While the current drop from $108 per barrel during the June 2014 peak to $46 is significantly smaller, that they’re comparable at all is staggering.

Now, there is a sharp divide among energy experts regarding the future direction of crude oil prices. The Saudi Prince Alwaleed bin Talal recently stated that oil prices could keep falling for quite sometime and $100 a barrel will never come back. Earlier this month, investment bank Goldman Sachs weighed in by slashing its short-term oil price target from $80 a barrel all the way to $42 a barrel. 

However, don't get to pessimistic, there are still plenty of optimists like billionaire T. Boone Pickens, who has argued that oil will bounce back to $100 a barrel within 12 months-18 months. Pickens thinks that Saudi Arabia will eventually give in and cut production. 
Though, this may be wishful thinking, supply and demand equations point to more lean times ahead for oil producers. 

Now to understand this phenomenon, from a different standpoint, let us look at the few charts below. 
Crude oil indicated that a possible major top was in place back in August 2014 when prices broke below a two-year trend line, signaling a change in long-term trend.   This is shown in the above chart when the price of WTIC Light Crude Oil fell below $95 / bbl.
In recent weeks, the decline in crude oil has entered the target zone of the four-year symmetrical triangle top completed in October which is around $44/bbl.  Any bounce back might face stiff resistance after several support levels were broken.
From 2011 to mid-2014 and including a brief period in 2008, oil prices were at historically high levels, higher than where it was during the period 1979 to 1983 when the Iranian revolution and the Iran-Iraq war disrupted oil supplies. And that’s after adjusting for inflation. 
We have seen from the above, that Chartically speaking, the crude oil prices looks negative in the short term.  Now let us look at some of the pros and cons of this episode. 
  • International Energy Agency (IEA) currently projects that supply will outstrip demand by more than 1 million barrels per day, or bpd, this quarter, and by nearly 1.5 million bpd in Q2 before falling in line with demand in the second half of the year, when oil demand is seasonally stronger.
    That said, these projections are built on the assumption that OPEC production will total 30 million bpd: its official quota. However, OPEC production was 480,000 bpd above the quota in December. At that rate, the supply-and-demand gap could reach nearly 2 million bpd in Q2.
    Theoretically, this gap between supply and demand could be closed either through reduced supply or increased demand. However, at the moment economic growth is slowing across much of the world. For oil demand to grow significantly, global GDP growth will have to speed up.
    On the flip side, after QE in Europe, there are talks of boosting of the economies of the EU. Also, India is coming up strongly, with the current stable government in place.
    Hence, we cannot take the argument of "Supply Outstripping Demand in Future" on the face value. Moreover, any supply cut either from the US or from the OPEC, could push 
    oil prices to rebound in the next two-three quarters.
  • Now, there are two ways that global oil production can be reduced. One possibility is that OPEC will cut production to prop up oil prices. The other possibility is that supply will fall into line with demand through market forces, with lower oil prices driving reduced drilling activity in high-cost areas, leading to lower production.
    OPEC is a wild card. A few individuals effectively control OPEC's production activity, particularly because Saudi Arabia has historically borne the brunt of OPEC production cuts. Right now, the OPEC bosses have opined to let market forces work. The moot point is: will Saudi Arabia cut production? In the 1980s, when a surge in oil prices drove a similar uptick in non-OPEC drilling and a decline in oil consumption, Saudi Arabia tried to prop up oil prices. The results were disastrous. Saudi Arabia cut its production from more than 10 million bpd in 1980 to less than 2.5 million bpd by 1985 and still couldn't keep prices up. But having said, this time the there are chances that other countries in OPEC could try to chip in with their own production cuts to take the burden off Saudi Arabia. However, the other members of OPEC have historically been unreliable when it comes to following production quotas. It's unlikely that they would be more successful today. The problem is that these countries face a "prisoner's dilemma" situation. Collectively, it might be in their interest to cut production. But each individual country is better off cheating on the agreement in order to sell more oil at the prevailing price, no matter what the other countries do. With no good enforcement mechanisms, these agreements regularly break down. But then any past track record cannot be future almanac. Isn't it? Therefore, we cannot totally rule out production cuts by the OPEC, if the Crude Oil continues to trend low.
  • Another interesting point which needs to looked at is that during the week ending Jan. 9, U.S. oil production hit a new multi-decade high of 9.19 million bpd. Surprisingly, in the last June -- when the price of crude was more than twice as high -- U.S. oil production was less than 8.5 million bpd. Any clues, about this outlandish US stance?
Conclusion: We have seen from the chart above, that at the present moment the crude oil looks bearish, but this could change, with change of stance, either from the US or from the OPEC. Meanwhile, the demand could pick up from China, India, Japan and other major oil consuming nations. 

In the long run -- barring an unexpected intervention by OPEC -- oil prices will stabilize around the marginal long-run cost of production (including the cost of capital spending). This level is almost certainly higher than the current price, but well below the $100 a barrel levelthat's been common since 2011. India, China and US would be happy if the crude oil price stays lower than $80 per barrel. 

West Texas Intermediate oil prices fell sharply on Friday, as concerns over slowing demand and ample supplies combined with a rally in the dollar weighed. 

To add salt to the wound, (i) the U.S. Energy Information Administration said Thursday that U.S. crude oil inventories rose by 10.1 million barrels last week, the biggest weekly gain since March 2001 (ii) the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose to more than 11-year highs of 95.77 on Friday, before trimming gains to end at 95.32, up 0.69% for the day and 2.33% higher for the week. A stronger U.S. dollar usually weighs on oil, as it makes dollar-priced commodities more expensive for holders of other currencies. (iii) the euro fell to fresh 11-year lows against the greenback after the European Central Bank unveiled a €1.2 trillion asset purchase program on Thursday. The central bank will purchase €60 billion in assets per month, starting in March and continuing until late 2016, to combat slowing growth and inflation in the euro area. Now, we need to asses future Chinese demands, the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand. Indian economy is also improving, which will fuel energy demand. 

Now let us summarize, why the Crude Oil price fell nearly 60% since June: 
(i) Apprehensions that the World Growth will slow down--which had a sentimental effect in the Crude Future Market. 
(ii) The Organization of Petroleum Exporting Countries resisted calls to cut output, 
(iii) The U.S. pumped at the fastest pace in more than three decades, creating a glut in global supplies. 
(iv) The U.S. dollar index, rose to more than 11-year highs of 95.77 on Friday, before trimming gains to end at 95.32, up 0.69% for the day and 2.33% higher for the week.

If there are positive changes change in any of the above four points especially from the U.S. whose inventories of oil and refined products have been rising by about 10 million barrels a week recently, we could see a rebound of the Crude Oil prices. The global supply demand balance can also improve from Q3, though it could worsen again in the first half of 2016 due to the typical seasonal drop in demand. 

Last month, the IEA found that U.S. petroleum storage capacity was only 60% full, but commercial crude oil inventory was at 75% of storage capacity. This percentage could rise quickly when refiners begin to cut output in Q2 for the seasonal switch to summer gasoline blends. Traders have even begun booking supertankers as floating oil storage facilities, aiming to buy crude on the cheap today and sell it at a higher price this summer or next year. If oil storage capacity becomes scarce later this year, oil prices will have to fall even further so that some existing oil fields become cash flow negative. This makes the case for slowing the supply vector. 

At today's prices, oil investment will not be sufficient to keep output up in 2016. Thus, T. Boone Pickens is probably right that oil prices will recover in the next 12 months-18 months, even if his prediction of $100 oil is too aggressive. With an increase in storage capacity, the price of crude oil could improve. 

And the big news over the weekend was the landslide victory for radical left wing party Syriza in Greece's parliamentary elections. Syriza ran on a platform of rejecting the austerity measures imposed on Greece by the Troika following the eurozone crisis in 2010. This could change the dynamics in Europe. Also, an improvement in sentiment due to stimulus by the European Central Bank over the coming days could fuel positive bets, on the Crude Oil futures; though the bearish overhang on crude remains with supply exceeding demand. And yes, crude at $60 per barrel by the year-end does not look too steep a target. 

However, the problem will rise if OPEC, US and other major oil exporting countries continues to maintain that Oil Output Must Rise to Compensate for Price Drop. 

It is to be understood that these countries, lost about 50 percent of their revenues because of the slump in oil. Oil slid more than 50 percent since June as the U.S. pumped at the fastest pace in more than three decades and the Organization of Petroleum Exporting Countries maintained its daily production target of 30 million barrels, resisting calls to makes cuts to reduce a supply glut. 

But this cannot continue for long, as many Oilfield services companies, which handle the rigs for exploration and production are scaling back their work forces. Schlumberger, the largest oilfield service company, said last week it would lay off 9,000 employees. 

“The time has come for a meeting, possibly a summit meeting, for all producers, OPEC and non-OPEC,” to discuss ways to lift oil prices, Ayad Allawi, a Vice President of Iraq, said in an interview. “Next year we will start seeing prices rising, it will level off between $60 and $70. This year it will remain between $40 and $50. 

One of the biggest lessons from the financial-market crash half a decade ago was ignoring panic and instead scooping up good assets at fire-sale prices. Would that lesson apply to oil today?

The first thing to consider is whether there’s any reason prices will recover at all. What are the fundamentals? Unlike corporations, oil as a commodity can’t really go bankrupt. Oil is a necessity, demand is relatively inelastic, and it dominates in practically everything that requires energy. It’ll always be needed over the immediate time frame. While the price may not hit $100 again in the short term, there is a fundamental limit to how low it can go.

At a bare minimum, oil should always cost what it takes to pump it out. According to 2008 estimates from the International Energy Agency, that value varies considerably depending on location and efficiency. Middle Eastern oil has been estimated to cost approximately $6-$10 per barrel due to the large economy of scale and the relatively mild near-surface conditions. Though these locations have very low costs, they don’t have sufficient capacity by themselves to satiate demand. For other onshore pumping, costs can be around $6-$39, and for deep-water offshore wells, costs can reach $32-$65 or more.

More difficult sources such as oil sands were estimated at around $30-$70 and shale oil wells were estimated at $50-$100. Since the cause of oil’s current crash is rooted in Saudi Arabia’s goal to push shale oil out of business while leaving conventional drilling profitable, there’s a potential bottom of $30-50 per barrel — close to today’s prices. While nobody except Saudi Arabia knows for sure, there’s a high chance prices will be allowed to rise once the goal of squeezing shale is complete.

Second consideration: How long would it take to profit from such an investment? History doesn't have a clear answer on this as the 1980s oil crash took decades to recover. However the 2009 oil crash only took 2 years, much faster than the stock market recovery. If Saudi Arabia’s goal is to push shale out, taking into account how long hedges last for, how long companies can operate in the red, and how fast they can slim down, one to three years may be reasonable.

Lastly, the most important question: How to profit from this? For the average retail investor, this is trickier than at first glance. The most obvious ways are betting on the crude-oil commodity price itself, betting on energy-sector companies and betting on oil-producing countries. 

Besides, a report by the International Energy Agency (IEA), said there were signs lower prices had begun to curb production in some areas, including North America. So, at the moment it is anybody's game in the Crude Market; but I feel the Crude Oil prices have more or less bottomed out at the current moment. A slow rise is in the offing in this week.

Sources