Power Ministry proposes to pool domestic, imported natural gas prices

In a move to help gas-starved power plants, power ministry has moved a draft note to Cabinet to seek approval for pooling imported liquefied natural gas (LNG) with the fuel available from the KG-D6 block after meeting the requirements of fertiliser units. At present, 7,800 MW of gas-based power generation is stuck due to scarcity of natural gas. Under the gas-pooling mechanism, around 3,000 MW capacity power plants will get gas in the financial year 2014-15 and the electricity produced from these plants will be sold at a tariff of Rs 7 per unit. Meanwhile, the remaining 4,800 MW capacity plants will be able to get natural gas in FY 2015-16.

The proposed electricity tariff by power ministry was derived after pooling the prices of imported and domestic gas and deducting government subsidy. Earlier, in June, the government had approved the pricing of all domestically produced gas at an average of international hub rates and cost of imported LNG. Such averaging pricing will raise the effective gas price to $11.43 per million British thermal unit (mmBtu) from $4.2 per mmBtu, leading to cost of electricity generation of Rs 10.47 per unit. Meanwhile, the ministry had already stated that consumers cannot absorb such a high cost of electricity and so the government should subsidise any cost over and above Rs 7 per unit. The power ministry proposal will be finalised once the government agrees to provide the subsidy.

India’s total installed power generation capacity is 225,793 MW, of which 18,714 MW or nearly 8 percent, is gas-based. At present, power plants in the country get just 17.25 million standard cubic metres per day of gas from domestic fields as against an allocation of 71.29 mmscmd on account of declining gas supplies from Reliance Industries' eastern offshore KG-D6 fields. The Gas production at the Reliance KG-D6 field fell 53 percent to 49.2 billion cubic feet in the April-June quarter from a year earlier mainly due to geological complexity, natural decline in the fields and higher than envisaged water ingress. 

Rupee weakens by 33 paise to 62.60

 The rupee shed 33 paise to 62.60 per dollar in the opening session against the previous close of 62.27 on the back of weakness in the domestic equity market.

Last week, the domestic unit had gained significantly as the US Federal Reserve chief Ben Bernanke said it plans to continue with its $85-billion quantitative easing programme.

However, on Friday, the RBI had cut back on some of the emergency measures taken to support the rupee in the monetary policy announcement.

Monetary policy announcement

In the monetary policy announcement, RBI raised the repo rate (the rate at which banks borrow from RBI) by 25 basis points to 7.5 per cent.

However, providing a leeway to banks, the central bank cut the marginal standing facility rate to 9.5 percent and also reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 per cent.

According to Srinivasaraghavan, Head of Treasury at Dhanlaxmi Bank, the rupee may be under pressure during the current weak due to month-end demand for dollar.

Call rates, G-Secs

Yields on the 10-year benchmark 7.16 per cent government bond, which matures in 2023, jumped to 8.61 per cent from 8.57 per cent. Prices for the 10-year bond fell to Rs 90.55 after opening at Rs 90.8.

Srinivasaraghavan said that bond yields will stay within the range of 8.65 to 8.40 per cent as there is expected to be devolvement in Monday's bond auction.

Inter-bank call money rates, the rates at which banks borrow from each other to meet their short-term funding needs, opened higher at 9.65 per cent from the previous close of 9.25 per cent.

SAIL surges on plan to build-up Bhilwara iron ore mine in Rajasthan

Steel Authority of India is currently trading at Rs 53.25, up by 1.15 points or 2.21% from its previous closing of Rs 52.10 on the BSE.

The scrip opened at Rs 52.60 and has touched a high and low of Rs 53.70 and Rs 52.25 respectively. So far 244463 shares were traded on the counter.

The BSE group 'A' stock of face value Rs 10 has touched a 52 week high of Rs 101.60 on 07-Jan-2013 and a 52 week low of Rs 37.65 on 07-Aug-2013.

Last one week high and low of the scrip stood at Rs 52.85 and Rs 47.00 respectively. The current market cap of the company is Rs 21520.04 crore.

The promoters holding in the company stood at 80.00% while Institutions and Non-Institutions held 16.54% and 3.45% respectively.

In a bid to partially meet its increased iron ore need, state-owned steel major Steel Authority of India (SAIL) is planning to build-up Bhilwara iron ore mine in Rajasthan and set up a pellet plant with 2 million tonne per annum capacity at the site. In this regard, the company will invest Rs 800 crore.

The company will start looking for required approval soon after getting the Letter of Intent (LoI) from Rajasthan government and production from the mine is likely to start in 3-4 years.

The company in general requires 1.6 tonnes of iron ore for producing every tonnes of steel and the Bhilwara mine will help the company will to partially meet its increased iron ore need. Though, the company never had iron ore problem. Last year, it had produced 21.48 MT ore to make 13.4 mt crude steel.

Sensex sheds 148 points

Indian stock markets fell over 0.7 per cent in the opening session on Monday on sustained selling by funds and retail investors despite firm Asian cues.

The 30-share BSE index Sensex was trading down by 147.88 points (0.73 per cent) at 20,115.83 and the 50-share NSE index Nifty was trading down by 48.45 points (0.81 per cent) at 5,963.65.

Asian stocks rose with the regional benchmark index trading near a four-month high on upbeat manufacturing data from China.

Global banking giant HSBC today said its preliminary purchasing managers’ index for the manufacturing sector in China hit 51.2 in September, the highest since March when the index stood at 51.6.

CSR spending may pump in Rs. 27, 000 cr a year

The new Companies Act, 2013, which proposes that 2% of profits earned by a certain class of companies must be spent on corporate social responsibility (CSR) activities,  would mean an estimated Rs. 27,000 crore will flow into grassroots development and social enterprise sectors every year, says a think-tank.

According to the Indian Institute of Corporate Affairs, of the 1.3 million companies in India, about 6,000-7,000 companies are covered under the new CSR rule as it is applicable only to companies that have a minimum net worth of Rs. 500 crore, turnover of Rs. 1,000 crore or net profit of Rs. 5 crore.

It is currently estimated that the average CSR spend currently is 1-1.25% of profits, while the Companies Act, 2013, prescribes 2%.  While the new Act does not make this kind of a CSR spending compulsory, it mandates reporting any failure in meeting this target, creating social pressure on companies.

While corporate affairs minister Sachin Pilot insists the new CSR rule is driven by the principles of self-regulation and self-disclosure, corporate leaders like Bajaj Group chairman Rahul Bajaj and Infosys vice-chairman Kris Gopalakrishnan have raised concerns over the government dictating terms on philanthropic initiatives of companies.

On the other hand, many including Kotak Mahindra Bank managing director Uday Kotak welcome the new rule. “There is a very fundamental change in CSR. Making it part of the law is path breaking,” Kotak said at a Confederation of Indian Industry (CII) conference on the Companies Act, 2013, early this week.

Asian shares cheered by upbeat China data

MSCI's broadest index of Asia-Pacific shares outside Japan 0.3% higher

Most Asian markets crept higher on Monday after a closely-watched measure of Chinese manufacturing hit its highest in six months and showed a promising pick up in export orders, another sign of stabilisation in the world's second biggest economy.

The news helped shake off a soft lead from Wall Street and nudged MSCI's broadest index of Asia-Pacific shares outside Japan 0.3% higher.

Shares in Shanghai gained 0.6%, Taiwan's main index was up 0.9% and South Korea firmed 0.3%. Japanese markets were closed for a holiday.

The flash HSBC Purchasing Managers' Index (PMI) for China climbed to 51.2 in September, from August's 50.1, with 10 out of 11 sub-indices up in the month. Dealers had looked for a reading of around 50.9.

New export orders jumped to a 10-month peak of 50.8, the first time in six months that exports have grown. Readings on manufacturing across Europe are due later on Monday.

The upbeat report sent the Australian dollar a quarter of a US cent higher to $0.9430. China alone takes around one-third of all Australia's exports, chiefly commodities such as iron ore.

Earlier, the euro had only the briefest of lifts from Chancellor Angela Merkel's victory in Germany's general election.

Having initially gained a quarter of a US cent to $1.3555, it quickly faded to $1.3525. Against the yen, the common currency eased to 134.18, from an early 134.56.

That left the dollar index little changed at 80.398, not far from a seven-month trough of 80.060 plumbed last week.

While Merkel won by a landslide, her conservatives appeared just short of the votes needed to rule on their own.

That left open the possibility of a "grand coalition" with the centre-left Social Democrats (SPD), who came a distant second. In the past, establishing a coalition accord has taken between four and eight weeks.

"The formation of a grand coalition could be a positive outcome for the euro zone," said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia.

"The SPD is in favour of further euro zone integration. As such, a grand coalition may be more willing to work with the ECB and euro zone governments to find a sustainable solution to the issues plaguing the euro zone periphery."

He noted one of the SPD's 2013 election policy proposals was the creation of a European debt redemption fund funded by euro zone bonds.

Second-guessing the Fed

The Dow Jones industrial average finished Friday with a loss of 1.2%, while the S&P 500 Index eased 0.7%.

Some of Friday's dip was attributed to comments from St. Louis Federal Reserve Bank President James Bullard who said that a start to winding down the stimulus program was possible in October, depending on coming economic data.

That was a surprise to most analysts who had thought there would not be enough fresh economic news by the October 29-30 meeting to swing the Fed from its dovish course.

"We do not expect the economy to look much different in the coming months and, in fact, some of the data on housing could look softer," said Michelle Girard, chief economist at RBS.

Girard thought it more likely the taper would begin in either December or March next year.

"We think the hurdle for tightening in December is somewhat high, and thus believe that the time frame for tapering has most likely been pushed back all the way to March."

If it is March, then the Fed could continue buying debt for much of 2014. That in turn would further push back the day when it might finally start raising interest rates.

Some clarity might come later on Monday since no less than three Fed officials are speaking, headlined by New York Fed President William Dudley. He is thought to be close to Chairman Ben Bernanke and to speak for the dovish majority of voting members.

Even the thought the Fed might start tapering in October jolted commodity markets, leaving gold down at $1,320.39 an ounce, from Thursday's peak of $1,374.54. Copper futures were off 1.1%.


Brent crude oil was steady at $109.22 a barrel, while US crude edged up 5 cents to $104.80.

Economy news of the day

Total tax collection in Mumbai (including corporate tax and income tax) for the June-September quarter has risen 13.5% to Rs755bn

RBI Governor raised the repo rate by 25 basis points to 7.5%. The rate on the marginal standing facility was cut 75 basis points to 9.5%. The minimum daily cash reserve ratio to be maintained was cut to 95% from 99%. (ET) 

The Power Ministry is likely to give the state electricity boards of Karnataka, Jharkhand and Bihar a breather by allowing them to convert their outstanding loans, till March 2013, into bonds as part of an amendment to the discom debt restructuring package. (BS)

Total tax collection in Mumbai (including corporate tax and income tax) for the June-September quarter has risen 13.5% to Rs755bn, according to data collated by the I-T Department. (ET)


The Cabinet approved a 10% hike in dearness allowance, which will benefit about 5mn central government staff and 3mn pensioners. The hike will be applicable from July 1. 

Factory output data across the globe hold key to gold

Gold prices on spot and futures markets are likely to be under pressure on Monday after prices dropped during the weekend. Prices tumbled as fears of the US Federal Reserve pruning its $80-billion-a-month stimulus package began to grip the market again.

James Bullard, President of St Louis Fed, said the US Federal Reserve could still consider tapering the stimulus at its meeting in October.

In addition, the US Commodity Futures Trading Commission reported that hedge funds and money managers cut their bullish bets in gold futures and options market.

The world’s largest exchange-traded fund in gold, SPDR Trust, reported nearly two tonnes fall in its holding of gold to 910.19 tonnes.

Factors deciding gold’s movement

Gold’s movement could be decided on Monday on a couple of factors too. One, a slew of purchase managers’ index or factory output data is due across the globe starting from China to nations in Europe to the US. It could hold clue to how the economy has recovered or are there any signs of recovery at all.

All Asian markets’ movements were influenced on hopes that China would report some recovery.

Currency movements, particularly the rupee’s against the dollar, will have some impact as any gain in the Indian rupee will make imports of commodities such as gold, crude oil and vegetable oils cheaper.

In early Asian trade, spot gold quoted at $1,314.83 an ounce after rising to $1,326.75 an ounce and gold futures maturing in December fell to $1,314.

Spot gold, gold futures

In Mumbai on Saturday, gold for jewellery (99.5% purity) dropped to Rs 30,000 and pure gold (99.9% purity) to Rs 30,145 for 10 gm.

On MCX, gold contracts expiring in October could drop to levels of 30,000.

Crude oil

Crude oil prices are likely to trade sideways as worries over supply disruptions in West Asia have eased. Also, Brent crude is seen under pressure to drop to levels of $100 a barrel once the US cuts its stimulus programme.

Additional supplies and the emergence of shale gas as an alternative that are other factors that could cast a shadow on crude oil in the long-term.

For the time-being, the purchase managers index could hold key as any recovery in the economy can propel the complex higher.

Brent crude for delivery in November quoted at $109.07 a barrel and West Texas Intermediate crude for the same month at $104.56.

Oils and Oilseeds

The oils and oilseed complex could head south as the peak production season is set to begin in Indonesia and Malaysia for palm oil. Kharif oilseeds harvest in India will add to the pressure.

A global meet on vegetable oils in Mumbai was told during the weekend that Malaysian palm oil could find its bottom at 2,100 ringgit in the near-term, though it could drop further if crude oil slips below $100 and rains prove beneficial in South America around Christmas time.

In early trade, Chicago Board of Trade soyabean contracts maturing in November ruled flat at $13.15 a bushel. Malaysian palm oil had closed during the weekend at 2,297 ringgit or $$734 a tonne.

Grains complex

Prospects of higher production and carryover stocks could begin driving the grains complex lower. However, higher export orders are keeping wheat prices up currently.

In early trade, corn (industrial maize) December contracts gained at $4.47 a bushel, while wheat contracts for the same month ruled at $6.48 a bushel.

ING Vysya Bank: Re-rating on the cards

Improving profitability, strong asset quality and strong growth prospects are key positives. Attractive valuations offer attractive risk-reward

ING Vysya Bank (ING) has delivered robust loan growth and asset quality trends over the past six-eight quarters despite the tough macro environment. The bank’s efforts to improve productivity and prudent lending practices have boosted its credit as well as earnings quality. Analysts expect ING to deliver 20-22 per cent net profit growth over FY13-15. Its loan growth is pegged at 23-24 per cent over the same period.

The bank’s future growth will be driven by SME (33 per cent of loan book) and retail segments. It has also increased focus on high-margin products such as gold loans and loan against property, which now form about half of incremental retail disbursements.

At Friday’s closing price of Rs 499 per share, the stock trades at 1.3 times estimated adjusted book value for FY14; in-line with its historical average one-year forward price/book value ratio. Most analysts remain positive on the bank.

“ING Vysya is currently trading at 1.1 times 12-month forward book but we believe it could re-rate to 1.7 times on the back of strong fundamentals, its ability to grow faster, and improving return profile”, says Rahul Jain, Banking analyst at Goldman Sachs Research. He has a target price of Rs 640 on the scrip, implying upsides of 28 per cent from Friday’s closing price.

Increasing competition, worsening macro and execution issues which could make deposit gathering a more expensive exercise are the key risks for the bank going forward. It also has limited pricing power as far as lending to quality corporates is concerned. A rising interest rate environment could thus rub off negatively on its net interest margin (NIM).

“Going forward, while the sharp rise in short-term rates could hit NIM, it could be partially offset by the recent capital infusion of Rs 1,800 crore”, says Kaitav Shah, analyst at Anand Rathi Securities.

ING’s focus on improving efficiency has led to fall in the bank’s cost to income ratio 14.8 per cent over FY05-09 to 64.5 per cent and stood at 56.2 per cent in FY13. Going forward, analysts expect this metric to futher come down to 52 per cent levels over the next couple of years. The bank is focussing on improving its employee productivity, brand awareness and product mix. Apart from pushing cost efficiencies, these efforts will lead to a higher CASA ratio for the bank, believe analysts.

The bank management remains fairly confident of maintaining its asset quality except for some minor pressures on its mid-corporate loan book. Notably, ING has reduced its gross non-performing assets (GNPA) ratio from 3.0 per cent in FY10 to about 1.75 prevailing. Its well-diversified loan book along with strong credit appraisal and underwriting practices have led to this improvement. ING’s restructured assets too are relatively lower at 1 per cent of total advances. Going forward as well, its high provision coverage ratio can adequately take care of any asset quality shocks.

“Despite uncertainties surrounding macros, the bank’s well capitalized position coupled with high provision coverage 89 per cent and marginal exposure to stressed segments lends comfort”, says Nilesh Parikh, Banking analyst at Edelweiss Securities.

Repo rate hike dampens market sentiment; Sensex nosedives 496 points

The Sensex and the Nifty were trading down by over 2.3 per cent in the pre-close session on Friday with all the broader indices in the red.

This followed RBI’s move to raise the repo rate by 25 bps to 7.5 per cent, which marketmen said came as a surprise.

The RBI monetary policy review sent the markets into a tizzy with the Sensex losing about 550 points and the Nifty losing about 150 points immediately after the announcement with banking and realty stocks becoming a major casualty.

At 2.57 p.m., the 30-share BSE index Sensex was down 496.23 points (2.4 per cent) at 20,150.41 and the 50-share NSE index Nifty was down 140.20 points (2.29 per cent) at 5,975.35.

Realty, banking, capital goods and PSU stocks succumbed to heavy selling pressure and were down 6.73 per cent, 4.91 per cent, 3.61 per cent and 2.54 per cent, respectively. Only healthcare, consumer durables and IT stocks were up 0.24 per cent, 0.22 per cent and 0.17 per cent, respectively.

GAIL (2.74%), Sun Pharma (1.59%), Wipro (1.44%), NTPC (1.22%), BHEL (0.37%) and Dr Reddy's (0.13%) were the only Sensex gainers, while the top five losers were ICICI Bank (6.04%), L&T (4.8%), SBI (4.52%), HUL (4.33%) and ONGC (4.16%).

In his first credit policy since taking over earlier this month, RBI Governor Raghuram Rajan has hiked the key policy repo rate.

RBI has increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 per cent to 7.5 per cent with immediate effect.

It has also reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25 per cent to 9.5 per cent with immediate effect; reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 per cent effective from the fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0 per cent.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 per cent and the Bank Rate stands reduced to 9.5 per cent with immediate effect. With these changes, the MSF rate and the Bank Rate are recalibrated to 200 basis points above the repo rate.

European benchmarks FTSE100, CAC 40 and DAX were marginally in the red.

Asian shares were mixed as investors started weighing down the Federal Reserve policy outlook, a day after the US central bank triggered a global rally by delaying the tapering of its bond-buying programme.

However, Fed tapering expectations were kept alive by the data showing US home resales surged in August to a 6-1/2-year high and factories grew busier in the Mid-Atlantic region this month.