New Delhi: Consumers in India have long valued gold in all its glittery splendour, but the country’s financial sector is hoping surging prices can finally lure more people into investing in gold-backed paper.
The sector is set to launch 2-3 new gold-backed, exchange traded funds over the next six months, industry officials say, so investors can participate in the metal’s bull run.
With the launch of the latest ETF by Reliance Capital Asset Management, India’s largest mutual fund, there are now four gold-backed funds to invest in.
The gold behind the funds has risen to 4.7 tonnes from over 3.0 tonnes at the end of October and 2.73 tonnes in May.
India is the world’s largest buyer of physical gold and the elaborate high quality jewellery is tightly interwoven with the country’s culture. There has, however, been much doubt whether the country would ever embrace gold as an investment vehicle in a big way.
“Our estimate is that 5% of India’s gold demand, which is about 40 tonnes, should come from ETFs in the next 12 to 18 months,” said S Kannan, associate vice-president of Kotak Commodities.
He said the change was expected as investors were beginning to break away from their traditional view that gold was a savings instrument, only to be sold during times of distress.
“There is a metamorphosis happening gradually,” Kannan said. “It is one of the most effective vehicles for riding the bull run in gold.”
Another analyst said that he saw the present volume and investments are likely to grow by 50 to 75% in the coming year.
“The awareness level is increasing,” said Ashok Mittal, vice president and country head for the commodity brokerage of Karvy.
Wednesday, November 14, 2007
Sharpest single-day gain for Sensex
Mumbai: The Sensex on 14 November ended with a gain of 4.69% as global markets rallied after stronger than expected earnings from retail giant Wal-Mart and a sharp drop in crude oil prices, dealers said.
The benchmark 30-share index rose 893.58 points, or 4.69%, to close at 19,929.06.
This was the sharpest single-day point gain for the Sensex, which had slipped over 6% last week.
The previous best single-day gain was 878.8 points on 23 October.
The National Stock Exchange’s Nifty rose 242.50 points to 5,937.90 in line. It touched a high of 5,950.20 and a low of 5,700.05 points.
Reports that Left parties may allow the government to negotiate India-specific safeguards with the International Atomic Energy Agency required to operationalise the nuclear deal with the US also boosted sentiments, brokers said.
Investors will now watch for monthly US retail sales data due later today to assess consumer spending patterns ahead of the crucial holiday shopping season in the world’s biggest economy.
Buying was strong in capital goods, banking, metal and oil stocks.
Reliance Industries, Larsen & Toubro and ICICI Bank were among the major gainers today.
“I was never bearish, there is a clear long-term growth story for India. Some people lost the plot (on emerging markets) due to the subprime concerns,” said Andrew Holland from DSP Merrill Lynch.
“The markets showed fresh resurgence on global clues. With credit concerns easing and earnings growth estimates strong, we expect the markets to hit record highs again,” said Naresh Garg, the chief investment officer with Sahar Mutual Fund.
Mid-day consolidation
Sensex today zoomed by nearly 715 points at mid-session on brisk buying by funds in heavy-weight stocks in metal, banking and capital goods sectors.
The Sensex, which commenced the day on a cheerful note, gathered further momentum and surged 715.49 points to 19,760.97 at 1300 hrs.
The broader National Stock Exchange’s Nifty shooted up by 201.90 points to 5,897.30 as buying pressure rose following reports of a steep rise in other Asian markets such as Japan and Hong Kong.
Reports that Left parties may allow the government to negotiate the India-specific safeguards with the IAEA required to operationalize nuclear deal with the US also boosted the trading sentiments, brokers said.
The government has reconvened a meeting of the UPA-Left committee on 16 November when a view is expected to be firmed up on the issue.
Morning surge
Mumbai: Powered by a strong turnaround in global markets, the bulls lifted the benchmark Sensex by 590 points during morning trade today.
Encouraged by positive political news and strong global cues, bulls strengthened their grip on the markets, making across-the-board purchases in early trade.
After opening sharply up at 19,336.96 the BSE barometer raced to a high of 19,625.43, a rise of 589.95 points, over previous close of 19,035.48.
However, later the Sensex fell marginally due to profit selling and was quoted at 19,506.17 at 1030 hours.
The wide-based National Stock index, Nifty, also spurted by 169.85 point to 5,875.25.
It surged by 139.15 points to 5,834.55 at 1030 hours from yesterday’s close of 5,695.40.
The stock markets welcomed the Left’s stand to allow the UPA government to proceed on discussion with the IAEA.
The Wall Street also reported a sharp rally yesterday. The Dow Jones Industrial Average last night jumped by 319.54 points or 2.46% and the Nasdaq Composite Index gained 89.52 or 3.46%, its biggest point gain since May 2002.
Asian indices too recorded sharp gains in early trade on the back of American rally.
The benchmark 30-share index rose 893.58 points, or 4.69%, to close at 19,929.06.
This was the sharpest single-day point gain for the Sensex, which had slipped over 6% last week.
The previous best single-day gain was 878.8 points on 23 October.
The National Stock Exchange’s Nifty rose 242.50 points to 5,937.90 in line. It touched a high of 5,950.20 and a low of 5,700.05 points.
Reports that Left parties may allow the government to negotiate India-specific safeguards with the International Atomic Energy Agency required to operationalise the nuclear deal with the US also boosted sentiments, brokers said.
Investors will now watch for monthly US retail sales data due later today to assess consumer spending patterns ahead of the crucial holiday shopping season in the world’s biggest economy.
Buying was strong in capital goods, banking, metal and oil stocks.
Reliance Industries, Larsen & Toubro and ICICI Bank were among the major gainers today.
“I was never bearish, there is a clear long-term growth story for India. Some people lost the plot (on emerging markets) due to the subprime concerns,” said Andrew Holland from DSP Merrill Lynch.
“The markets showed fresh resurgence on global clues. With credit concerns easing and earnings growth estimates strong, we expect the markets to hit record highs again,” said Naresh Garg, the chief investment officer with Sahar Mutual Fund.
Mid-day consolidation
Sensex today zoomed by nearly 715 points at mid-session on brisk buying by funds in heavy-weight stocks in metal, banking and capital goods sectors.
The Sensex, which commenced the day on a cheerful note, gathered further momentum and surged 715.49 points to 19,760.97 at 1300 hrs.
The broader National Stock Exchange’s Nifty shooted up by 201.90 points to 5,897.30 as buying pressure rose following reports of a steep rise in other Asian markets such as Japan and Hong Kong.
Reports that Left parties may allow the government to negotiate the India-specific safeguards with the IAEA required to operationalize nuclear deal with the US also boosted the trading sentiments, brokers said.
The government has reconvened a meeting of the UPA-Left committee on 16 November when a view is expected to be firmed up on the issue.
Morning surge
Mumbai: Powered by a strong turnaround in global markets, the bulls lifted the benchmark Sensex by 590 points during morning trade today.
Encouraged by positive political news and strong global cues, bulls strengthened their grip on the markets, making across-the-board purchases in early trade.
After opening sharply up at 19,336.96 the BSE barometer raced to a high of 19,625.43, a rise of 589.95 points, over previous close of 19,035.48.
However, later the Sensex fell marginally due to profit selling and was quoted at 19,506.17 at 1030 hours.
The wide-based National Stock index, Nifty, also spurted by 169.85 point to 5,875.25.
It surged by 139.15 points to 5,834.55 at 1030 hours from yesterday’s close of 5,695.40.
The stock markets welcomed the Left’s stand to allow the UPA government to proceed on discussion with the IAEA.
The Wall Street also reported a sharp rally yesterday. The Dow Jones Industrial Average last night jumped by 319.54 points or 2.46% and the Nasdaq Composite Index gained 89.52 or 3.46%, its biggest point gain since May 2002.
Asian indices too recorded sharp gains in early trade on the back of American rally.
People ready, not the state
In the temple town of Kumbakonam, near Thanjavur in Tamil Nadu, where I spent Deepavali, the disconnect between the fast growing globalized India and the rural and small-town India is more palpable than ever.
In this rice bowl of the country, the fields are flush and green, with more than 80% of the paddy transplantation completed on time—the harvest at Pongal would be a normal one. A walk through the streets of Kumbakonam was revealing. They were thronged with shoppers, but it was a silent crowd. Shoppers focused on candles, flowers, crackers, fruit and sweets. The consumer goods shops and the higher end boutiques were quiet. Apparel purchases were from the street, not brand names, and on Deepavali day itself, the festivities ended early, as though people wanted to get back to their normal drudgery. Quite a change from the crowds in Chennai, in the gold marts and diamond centres, in the mobile and electronics shops. And a big difference from the splurges in New Delhi one reads about.
The reasons are not tough to find. In a few paddy fields, one sees forlorn signs of government initiatives to improve technology and productivity, but for the most, paddy is grown and transplanted in the same way as in the last thousand years. The villagers I meet testify that agriculture is fast becoming unremunerative. There are no signs of new seeds, fertilizers are hard to come by and expensive, and marketing continues to be in the hands of small traders. A majority of the graduates of the several engineering colleges here linger in the job market for more than two years, a reflection on the quality of education. In 40 years, I have seen little change in the town except in the size of its population. No sewerage, falling nutrition levels and worsening health indicators. It seems a tired town, with few expectations.
There is a visible difference between private initiative and government activity. Private buses are better and punctual, and cause fewer accidents. Private engineering colleges produce a larger percentage of employable people. Private temples are cleaner, better managed. In short, governance and government is missing. The worry is that it takes little to set it right, and that there is little attempt to do it.
The draft of the 11th Plan has been finalized, and the thrust is on indicators to measure investment in education, health and agriculture. The Planning Commission chairman’s concerns about growing subsidies, and the extent to which these would reduce public investment spending, are a sobering backdrop to the Plan. There is concern over the fact that inclusive growth is not happening and that the distance between the Sensex and the small-towners is growing every day.
Sadly, the commission merely continues to express so many concerns —one would have thought they would have practical solutions. It is possible to find ways to bridge the divide. The first is to strengthen existing institutions and focus on delivery.
The Union finance minister had promised an initiative for farm extension in his Budget speech this year, but nothing has been done so far.
A private fertilizer firm in Kumbakonam is providing end-to-end solutions for the farmer—inputs, soil sampling, advice on crop practices and marketing help by tying up with major retail chains. It is working well—an example of what institutional support can do. The farmers are aware and willing to learn. A local magazine wrote about Arokiasamy of Masilapalyam panchayat in Salem district. The villagers recognized this wage labourer’s probity and asked him to be president—he is attending diligently to all panchayat work. Ironically, his wife can’t find work without him—now they have no income and find it tough even to buy rice at Rs2 per kg. People are ready, but not the government.
In the small towns, Thanjavur, Kumbakonam, Chidambaram and Cuddalore, poor waste and water management cause many water-borne diseases. Yet, there are no large initiatives, either at the state or the central level, for urban infrastructure. More local trains and buses would enable labour mobility without adding to urbanization—note how people in Kerala travel between their villages and towns and their places of work daily, thanks to the passenger train connectivity in the narrow state.
Public health is a concern, yet institutions are not strengthened. At Gingee, Dr Rajeswari recently had to manage the primary health centre alone for three days and nights, attending to more than 500 patients, until she collapsed—thanks to the delay in posting of a full team of doctors. The real India, the aam aadmi, still has his honour and ethics. He looks for little from government other than effective delivery of what is announced: he is willing to work hard. But there seems to be little space in the political and administrative firmament, and in the media, for the poor man. Yet, it takes little to improve matters.
By, S. Narayan
(Former Finance Secretary and Economic Advisor)
In this rice bowl of the country, the fields are flush and green, with more than 80% of the paddy transplantation completed on time—the harvest at Pongal would be a normal one. A walk through the streets of Kumbakonam was revealing. They were thronged with shoppers, but it was a silent crowd. Shoppers focused on candles, flowers, crackers, fruit and sweets. The consumer goods shops and the higher end boutiques were quiet. Apparel purchases were from the street, not brand names, and on Deepavali day itself, the festivities ended early, as though people wanted to get back to their normal drudgery. Quite a change from the crowds in Chennai, in the gold marts and diamond centres, in the mobile and electronics shops. And a big difference from the splurges in New Delhi one reads about.
The reasons are not tough to find. In a few paddy fields, one sees forlorn signs of government initiatives to improve technology and productivity, but for the most, paddy is grown and transplanted in the same way as in the last thousand years. The villagers I meet testify that agriculture is fast becoming unremunerative. There are no signs of new seeds, fertilizers are hard to come by and expensive, and marketing continues to be in the hands of small traders. A majority of the graduates of the several engineering colleges here linger in the job market for more than two years, a reflection on the quality of education. In 40 years, I have seen little change in the town except in the size of its population. No sewerage, falling nutrition levels and worsening health indicators. It seems a tired town, with few expectations.
There is a visible difference between private initiative and government activity. Private buses are better and punctual, and cause fewer accidents. Private engineering colleges produce a larger percentage of employable people. Private temples are cleaner, better managed. In short, governance and government is missing. The worry is that it takes little to set it right, and that there is little attempt to do it.
The draft of the 11th Plan has been finalized, and the thrust is on indicators to measure investment in education, health and agriculture. The Planning Commission chairman’s concerns about growing subsidies, and the extent to which these would reduce public investment spending, are a sobering backdrop to the Plan. There is concern over the fact that inclusive growth is not happening and that the distance between the Sensex and the small-towners is growing every day.
Sadly, the commission merely continues to express so many concerns —one would have thought they would have practical solutions. It is possible to find ways to bridge the divide. The first is to strengthen existing institutions and focus on delivery.
The Union finance minister had promised an initiative for farm extension in his Budget speech this year, but nothing has been done so far.
A private fertilizer firm in Kumbakonam is providing end-to-end solutions for the farmer—inputs, soil sampling, advice on crop practices and marketing help by tying up with major retail chains. It is working well—an example of what institutional support can do. The farmers are aware and willing to learn. A local magazine wrote about Arokiasamy of Masilapalyam panchayat in Salem district. The villagers recognized this wage labourer’s probity and asked him to be president—he is attending diligently to all panchayat work. Ironically, his wife can’t find work without him—now they have no income and find it tough even to buy rice at Rs2 per kg. People are ready, but not the government.
In the small towns, Thanjavur, Kumbakonam, Chidambaram and Cuddalore, poor waste and water management cause many water-borne diseases. Yet, there are no large initiatives, either at the state or the central level, for urban infrastructure. More local trains and buses would enable labour mobility without adding to urbanization—note how people in Kerala travel between their villages and towns and their places of work daily, thanks to the passenger train connectivity in the narrow state.
Public health is a concern, yet institutions are not strengthened. At Gingee, Dr Rajeswari recently had to manage the primary health centre alone for three days and nights, attending to more than 500 patients, until she collapsed—thanks to the delay in posting of a full team of doctors. The real India, the aam aadmi, still has his honour and ethics. He looks for little from government other than effective delivery of what is announced: he is willing to work hard. But there seems to be little space in the political and administrative firmament, and in the media, for the poor man. Yet, it takes little to improve matters.
By, S. Narayan
(Former Finance Secretary and Economic Advisor)
STICKER SHOCK
Indian customers thronged jewellery shops during the festive Diwali season this month, but many walked away empty-handed or with a fraction of their usual purchases because of high prices.
Gold prices came close to toppling the 1980 record high of $850 this month but have since dropped back to around $800 an ounce. But gold is still pricey for many looking to buy jewellery sets for festivals and marriages.
“Slowly, people are realizing the value of paper gold,” said Debashish Mohanty, country head of the retail network at UTI Asset Management Company, which runs a gold ETF.
“If you go to a reputed jeweller to buy gold, you always pay a premium,” he added. “But in exchange traded funds, it always replicates the international price.”
Mohanty said that the advantage of not having to worry about securing your gold or the metal purity was expected to attract the rising number of salaried investors in cities.
UTI Asset Management was in the process of tying up with some banks to help expand their ETF client base, he added.
“The investor sentiment is quite strong in favour of gold. Now they understand that there is another class of asset available,” said Gnanasekhar Thiagarajan, director at Commtrendz Risk Management.
“Clearly, the ETF market is slowly panning out to be a decent alternative to an investor now,” he added.
Those looking to make a quick profit may invest in the paper investment rather than jewellery, as Indian households often get emotionally attached to gold given to them on special occasions, Thiagarajan said.
But analysts say the long-term fundamentals are bullish and the metal’s price could touch $900 an ounce by March.
“As we go ahead, people will realize the value of ETFs,” said Vikram Dhawan, head of commodities, Reliance Mutual Fund. “After all, it took one-and-a-half years in the West to popularize. It is still early days here.”
Reliance Capital Asset Management collected over Rs150 crore for its gold ETF this month. It is to be listed by end of November.
Industry officials said that not many rural investors, who account for 60% of India’s gold demand, would immediately invest in ETFs because of the need to have a trading account.
But even if demand picks up in the cities, it would still boost volumes.
“Our aim is to first capture the urban markets,” Mohanty said. “Once that happens, it will spread fast.”
Gold prices came close to toppling the 1980 record high of $850 this month but have since dropped back to around $800 an ounce. But gold is still pricey for many looking to buy jewellery sets for festivals and marriages.
“Slowly, people are realizing the value of paper gold,” said Debashish Mohanty, country head of the retail network at UTI Asset Management Company, which runs a gold ETF.
“If you go to a reputed jeweller to buy gold, you always pay a premium,” he added. “But in exchange traded funds, it always replicates the international price.”
Mohanty said that the advantage of not having to worry about securing your gold or the metal purity was expected to attract the rising number of salaried investors in cities.
UTI Asset Management was in the process of tying up with some banks to help expand their ETF client base, he added.
“The investor sentiment is quite strong in favour of gold. Now they understand that there is another class of asset available,” said Gnanasekhar Thiagarajan, director at Commtrendz Risk Management.
“Clearly, the ETF market is slowly panning out to be a decent alternative to an investor now,” he added.
Those looking to make a quick profit may invest in the paper investment rather than jewellery, as Indian households often get emotionally attached to gold given to them on special occasions, Thiagarajan said.
But analysts say the long-term fundamentals are bullish and the metal’s price could touch $900 an ounce by March.
“As we go ahead, people will realize the value of ETFs,” said Vikram Dhawan, head of commodities, Reliance Mutual Fund. “After all, it took one-and-a-half years in the West to popularize. It is still early days here.”
Reliance Capital Asset Management collected over Rs150 crore for its gold ETF this month. It is to be listed by end of November.
Industry officials said that not many rural investors, who account for 60% of India’s gold demand, would immediately invest in ETFs because of the need to have a trading account.
But even if demand picks up in the cities, it would still boost volumes.
“Our aim is to first capture the urban markets,” Mohanty said. “Once that happens, it will spread fast.”
Oil prices rebound in Asia after steep overnight drop
Singapore: Oil prices rebounded modestly in Asian trading Wednesday as traders bought contracts after they dropped sharply in the previous session.
Crude prices had declined sharply after the International Energy Agency cut its demand forecasts and said Tuesday that crude supplies are rising.
“Essentially, what the IEA indicated was that high crude prices were weighing down on oil demand,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “The news is seen as bearish for the market.”
The IEA, an energy policy advisor to 26 predominantly Western industrialized nations, lowered its fourth-quarter oil demand forecasts by 500,000 barrels a day, and cut its demand forecasts for 2008 by 300,000 barrels a day. Year-over-year demand growth will now average 1.2% in 2007 and 2.3% in 2008, the IEA said.
At the same time, global oil supplies grew by 1.4 million barrels a day in October due to increases in OPEC supplies and production in China, Azerbaijan and Russia, the IEA said. The Organization of Petroleum Exporting Countries boosted output by 410,000 barrels a day in October, the IEA said.
Light, sweet crude for December delivery rose 28 cents to $91.45 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore.
On Tuesday, the contract fell $3.45 to settle at $91.17 a barrel.
Only last Thursday, crude prices rose to an intraday record of $98.62 a barrel and appeared headed for US$100, driven by a mixture of concerns about falling domestic supplies and rising demand, the threat of disruptions to the oil flow from the Middle East and actual breaks in production from Nigeria.
But analysts have long theorized that oil was also lifted by speculative buying incited by the dollar’s long decline. And while some of the market’s fundamental concerns seemed to be ebbing Tuesday, some of the selling was likely due in part to a reversal of those speculative bets.
Whether Tuesday’s sharp decline marks the beginning of the end of an oil bubble remains to be seen. Analysts say investors who still believe oil will rise above $100 will swoop in to “buy the dips” whenever oil prices fall.
“We have not seen high pricing substantially change supply or demand. We actually need large changes in either supply or demand to really cause a significant retreat or surge in pricing,” Shum said.
“Because the factors that drove pricing to record highs have not changed, it is therefore likely that the crude market will make another run toward $100.”
Traders were awaiting the Energy Information Administration’s weekly inventory report, delayed until Thursday this week due to Monday’s Veteran’s Day holiday.
The report is expected to show that US crude oil inventories fell by 300,000 barrels last week, according to the average estimate of analysts polled by Dow Jones. Gasoline inventories, on average, likely fell 100,000 barrels, while distillate stocks were expected to fall 300,000 barrels. Refinery use likely rose 0.7 percentage point to 86.9% of capacity.
Nymex heating oil futures gained 0.59 cent to $2.508 a gallon (3.8 litres) while gasoline prices rose 0.59 cent to $2.3226 a gallon.
Natural gas futures rose 2.6 cents to $7.975 per 1,000 cubic feet.
Crude prices had declined sharply after the International Energy Agency cut its demand forecasts and said Tuesday that crude supplies are rising.
“Essentially, what the IEA indicated was that high crude prices were weighing down on oil demand,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “The news is seen as bearish for the market.”
The IEA, an energy policy advisor to 26 predominantly Western industrialized nations, lowered its fourth-quarter oil demand forecasts by 500,000 barrels a day, and cut its demand forecasts for 2008 by 300,000 barrels a day. Year-over-year demand growth will now average 1.2% in 2007 and 2.3% in 2008, the IEA said.
At the same time, global oil supplies grew by 1.4 million barrels a day in October due to increases in OPEC supplies and production in China, Azerbaijan and Russia, the IEA said. The Organization of Petroleum Exporting Countries boosted output by 410,000 barrels a day in October, the IEA said.
Light, sweet crude for December delivery rose 28 cents to $91.45 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore.
On Tuesday, the contract fell $3.45 to settle at $91.17 a barrel.
Only last Thursday, crude prices rose to an intraday record of $98.62 a barrel and appeared headed for US$100, driven by a mixture of concerns about falling domestic supplies and rising demand, the threat of disruptions to the oil flow from the Middle East and actual breaks in production from Nigeria.
But analysts have long theorized that oil was also lifted by speculative buying incited by the dollar’s long decline. And while some of the market’s fundamental concerns seemed to be ebbing Tuesday, some of the selling was likely due in part to a reversal of those speculative bets.
Whether Tuesday’s sharp decline marks the beginning of the end of an oil bubble remains to be seen. Analysts say investors who still believe oil will rise above $100 will swoop in to “buy the dips” whenever oil prices fall.
“We have not seen high pricing substantially change supply or demand. We actually need large changes in either supply or demand to really cause a significant retreat or surge in pricing,” Shum said.
“Because the factors that drove pricing to record highs have not changed, it is therefore likely that the crude market will make another run toward $100.”
Traders were awaiting the Energy Information Administration’s weekly inventory report, delayed until Thursday this week due to Monday’s Veteran’s Day holiday.
The report is expected to show that US crude oil inventories fell by 300,000 barrels last week, according to the average estimate of analysts polled by Dow Jones. Gasoline inventories, on average, likely fell 100,000 barrels, while distillate stocks were expected to fall 300,000 barrels. Refinery use likely rose 0.7 percentage point to 86.9% of capacity.
Nymex heating oil futures gained 0.59 cent to $2.508 a gallon (3.8 litres) while gasoline prices rose 0.59 cent to $2.3226 a gallon.
Natural gas futures rose 2.6 cents to $7.975 per 1,000 cubic feet.
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