• Hindu Business Line: Fall in coal prices may ease cement cos’ burden

Coal cost for the cement companies is likely to range between $190 and $200 a tonne (cost, insurance and freight) in the second quarter of the financial year 2008, against $170-240 a tonne in the first quarter.

On the domestic front, the electronic auction undertaken by Coal India has pushed up coal prices by 30-40 per cent to Rs 1,600 a tonne as the demand has gone up many folds, said another cement company official. Indian coal is of low calorific value compared with imported coal.

• DB: Indian Brokerage Sector

Despite a strong correction of 50-60% YTD, we believe it is still not too late to Sell as these brokerage stocks are currently trading at a premium to market multiples despite having higher betas.

In India the turnover has been steadily growing in the past few years as more FIIs have entered the market and more F&O contracts have been introduced in various securities. However, during the recession of 02 volumes declined 50% yoy.

The Indian broking industry is fairly large and fragmented with 9,000 odd brokers in the cash
segment and around 24,000 sub-brokers. The top five brokers in India command around 15-16% market share.

We expect volumes to decline 16% in FY09E followed by 20% growth in FY10E and FY11E.

Not too encouraging if you are a broker or shareholder.

• MarketWatch: Big jump in gold sale spurs manipulation talk

Recent heat from Congress and regulators, along with public speculation, over whether commodity prices are being manipulated has also reached gold pits, where the debate was stirred by a surge in bets last month that gold prices would fall.

Three unidentified U.S. banks held 86,398 short positions, or bets that gold prices will fall, in the COMEX gold market as of Aug. 5 — 10 times more short positions than a month earlier.

“What you have here is the footprints of hedge funds exiting the commodities markets en masse,” said Kitco’s Nadler.

Manipulation or exodus - does it matter? Price tells all.

• Economic Times: Uncertain growth? ICICI cutting costs aggressively

Caught in an atmosphere of uncertain growth and rising costs of essential services, India’s largest private sector bank is cutting costs aggressively. ICICI Bank is shifting thousands of jobs from Mumbai to Hyderabad. The bank is also cutting down on banking hours in several branches and curbing staff reimbursements such as phone and conveyance bills.

ICICI’s reaction was that all that the management has done is to clampdown on unnecessary costs that had ‘escaped scrutiny during the high growth years’.

Ah, the good old ‘high growth’ years - will we ever see them again?

• TheStreet.com: Piggybacking Your Way to Profits

What do I mean by relentless pricing? This term refers to the signature of computer programs on trend days, when markets fail to turn at natural pivot points that would have triggered reversal activity in prior years. Price channels are the telltale signatures of these lopsided events, usually showing up on the index futures.

Characteristically, the only countertrend movement in these types of sessions happens around the lunch hour and in the final 30 minutes, when a sometimes-violent counterswing shakes out positions ahead of the close. In between, every wiggle against the trend runs into a synthetic wall of pressure that forces pricing in the other direction.

Look at intraday charts of the Nifty future in August; combine that with dropping volumes and what do you get? A nightmare for day traders!

• RGE Monitor: Optimism in Dubai and Johannesburg

Is Dubai a bubble economy? Of course it is, but even when the bubble bursts the accomplishments and dynamic commercial skills concentrated in Dubai will persist and form a solid foundation for enabling future growth. My guess is that as the US and UK financial-based economies implode from debt-deflation, and their military influence in the Gulf recedes, Dubai will strengthen its network of trade and finance deeper into former Eastern Europe, Asia and Africa.

Mauldin offers specific praise for development of South Africa’s housing, retail, banking, commodities and farming sectors. I have never read a piece by him so optimistic about anywhere else, particularly in the developing world. As South Africa continues to grow at 4-5 percent each year (probably an under-estimate of real growth), the middle class continues to grow and prosper. So although a Zuma administration may hold risks, I hope there will be constraints on their policies as the already substantial and growing middle class enforces longer term discipline on the government.

• Bloomberg: Commodity Shipping Lines Reel as Baltic Index Tumbles

The Baltic Dry Index, the benchmark for shipping costs, fell for 23 consecutive sessions through Aug. 12, the worst decline since the third quarter of 2005. The index will average 40 percent less next year and sink another 47 percent in 2010.

Slowing growth comes as shipyards have almost as many capesize vessels on order as already exist in the fleet.

. . . even after the 23-day decline in rates, shipping costs remain more than three times higher than their 20-year average of 2,015 on the Baltic Dry Index.

Wow - those are some dire predictions from GS.

• Business Standard: Auto component makers see growth halving this year

The auto component industry expects growth to halve in the current financial year owing to a slowdown in demand for automobiles due to high interest rates and burgeoning fuel prices. “The industry will grow at 6-8 per cent as compared with a forecast of 12-13 per cent,” . . .

Manufacturers, which have already seen their margins shrink by 300-400 points last quarter, are already struggling as they have been absorbing a part of the rising input costs.

I imagine the next round of quarterly results is going to be ugly - not just for the auto sector.

• Economic Times: Real estate firms delay plans, shares face the heat

Even mid-size developers in India say they hold land reserves of 60-100 million sq ft, sufficient for projects planned in the next 3-4 years.

An analyst at a domestic brokerage said it had recently changed valuation methodology to net-asset-value basis, which had led to some downward revision in target prices. The new method values companies based on current assets rather than future cash flows, he added. CLSA lowered its net asset value estimate for HDIL by 29 percent, citing higher costs on account of rising interest rates.

Welcome to the magical world of real estate accounting & valuations.

• Hindu Business Line: DSP ML World Gold Fund

Last week, I put on a position in gold mining stocks - they have promptly dropped 3%+, but I am bravely holding on!

• DNA: Investment policy gives urea sector a big leg-up

The Centre on Friday cleared a producer-friendly policy on investments in urea plants, which can increase capacity at existing plants by 3 million tonnes over the next two years through debottlenecking exercises.

India produces 20 million tonnes a year, but that is 40% short of demand, estimated at around 28 million tonnes currently.

“The entire thing depends on gas availability and price. If it is available to fertiliser manufacturers at $5 per mmbtu, urea production will go up,”

• RGE Monitor: Navigating Towards a Global Recession?

A few weeks back we surveyed a group of countries navigating towards (or through) recession. The list included the U.S., Canada, Spain, Ireland, Italy, the UK, the Baltics and New Zealand. Now the growth engine of the EMU, Germany, is faltering, together with France. And a recession might be in the works for Japan as well. This essentially leaves us with a fully fledged G7 recession in the making.

China’s exports to Europe, which marked double digit growth last year are now falling, manufacturing output seems to be contracting and exporters are complaining of higher labor and input costs. With a focus on growth, and headline inflation stabilized, the Chinese government is shifting away from its ‘tight’ monetary policy some lending curbs have been lifted and RMB appreciation has already stalled.

There’s not much doubt about a worldwide slowdown; look at the continuing steep fall in the Baltic Dry Index:

• Seeking Alpha: Emerging Markets Infrastructure Is Booming

. . . the number of listed EM infrastructure-related entities, notes MS - has risen from 230 to 354 (54% increase) over the last five years—with total market cap increasing from $146 billion to $1.1 trillion.

• Economic Times: Aggressive FIIs borrowing shares heavily

With futures of many key index stocks quoting at a significant discount to spot prices, some aggressive foreign fund houses are learnt to have been borrowing shares heavily in a bid to cash in on the situation. These overseas players borrow the shares for an interest charge, sell them in the market, and simultaneously buy an equivalent quantity of the futures of that stock, which are available at a discount. This entire transaction is known as ‘reverse arbitrage’ in market parlance.

. . . none of the borrowing is happening through the securities lending borrowing scheme (SLBS).

Some brokers allege that the steep fall in stock futures is being precipitated by basket selling of stock futures by some FIIs in a bid to pull down the index.

The other option is to short-sell deep in-the-money calls and buy the corresponding future. The risk is that the calls get exercised at end-of-day and the stock gaps down the next morning.

• Financial Sense: Disaster Averted, So Far

On Tuesday of this week, the S&P 500 opened down, breaking significant support, and kept moving lower. I thought to myself, “This is it. Crash in progress.” Then subtle buying began, the decline was stopped in its tracks, and an advance began that lasted three days. My sense of the events was that the Crash Prevention Team had acted, but that is pure speculation about an urban myth.

Certainly there were fundamental events later in the week that assisted the rally — the president’s lifting the executive prohibition of off-shore drilling, and oil prices dropping to $130 — but the price reversal during the first hour on Tuesday seemed magical to say the least.

Oversold, short covering, SEC rule changes, Plunge Protection Team, oil, . . . the explanations vary. Bottom-line: prices went up.

• Business Standard: Rs 8,000 crore premium realty projects face delay

. . . the construction cost for large commercial projects was Rs 2,000 per square foot, on average . . . construction cost is growing 20 per cent every year and the developers are carrying a compounded interest burden of 30 to 40 per cent after three years.

By 2008-end, Mumbai and its suburbs will add 15.4 million square feet of office space.

“In Mumbai, developers need to obtain 56 approvals from environment and forest department, pollution control board and others. It takes over a year to get these approvals,”

• Hindu Business Line: Six sectoral indices hit year lows

. . . six key sectoral indices hit their 52-week lows on Monday as the Sensex fell another 2 per cent. The BSE PSU Index , Bankex, Realty, Auto, Power and Capital Goods were the indices that recorded their new 52-week lows on Monday.

. . . defensive sectors such as BSE Health Care and FMCG are trading close to their yearly highs. Market men say that these sectors are not affected much by an increase in interest rates or even the rising crude oil prices.

• DNA: FII unloading spree is worst to date

In May and June, institutions (FIIs +DIIs) have net sold equities worth Rs 11,472 crore. That tops the Rs 9,525 crore net sales by them in January. Despite high cash positions and new fund-offer collections, local institutions have not been shopping hard in the summer sale.

. . . even the long-term fund managers among the FIIs are pruning their India exposures faced with redemption pressures. India dedicated funds saw redemptions of $205 million during the week ending June 18, 2008.

The rupee has been consistently at just below 43, seems to be held back by RBI intervention.

• Bloomberg: Gazprom CEO’s $250 Oil Forecast Deals Doom Options Traders Love

Alexei Miller, chief executive officer of OAO Gazprom, the world’s biggest natural- gas company, said June 10 that crude will climb to $250 a barrel in the “foreseeable future.”

Some investors are already betting on Miller’s forecast. At least 3,008 options contracts have been purchased giving holders the right to buy oil at $250 a barrel in December.

Rising oil costs have been responsible for a third of global food inflation since 2004.

Extrapolation to the extreme!

• Business Standard: Private equity players still chases infrastructure profits

Major private equity players, who invested Rs 5,730 crore in infrastructure companies in calendar year 2007, have seen the market value of their holdings erode by over 40% due to recent slump in the domestic equity market.

“At the time of investing, private equity players had too much expectations from infrastructure growth. However, higher inflation, rising crude oil prices, tightening liquidity, higher interest rate, slowdown in industrial growth, among others, have started putting pressure.”

• Hussman Funds: Fed to Markets: “We Ain’t Got To Show You No Stinking Credibility”

The Fed is on the fast track to destroying its own credibility. In my view, no sooner will all of this “tough love” leave the lips of Fed governors than the Fed will be forced to announce some novel emergency “liquidity facility” to address a fresh round of credit concerns.

. . . it is typical for commodity prices to “hang on” early into a recession and then dive as employment losses build . . . commodities typically don’t perform well during recessions once real interest rates trough (as they appear to have done).

If the government insists on creating huge volumes of debt, it must either be held by the public in the form of Treasury securities (putting a demand on funds that would otherwise be available for domestic investment), or else the Fed has to buy the Treasuries and create base money.

• Business Standard: Interest rates set to go up soon

Banks may soon raise lending as well as deposit rates with the Reserve Bank of India increasing repo rate, or the rate at which it lends to banks, by 25 basis points to 8 per cent. While trying to rein in the runaway inflation, the central bank, however, left the reverse repo rate unchanged.

“Most of us change interest rates on the first day of the month. So, we at HDFC will look at it in the month of June and it will only be effective on July 1. We have a couple of weeks to take a view, looking at what our competitors are doing, the liquidity in the market and our margins because we have to protect them”.

• DNA: Realty investors begin to under-cut builder rates

Even as realty stocks are quoting at huge discounts to their issue prices (DLF at Rs 479.85 against Rs 525 issue price; and Omaxe, Parsvnath and Puravankara at 40-50% discounts), realty is suddenly looking scary for investors.

“In Bandra and Khar,” he says, “investors are willing to sell at Rs21,000-15,000 per sq ft as against the prevailing rates of Rs23,000 and Rs18,000.”

. . . as companies follow the percentage completion method for recording sales and profits, rising input costs may lead to write-downs in future if costs incurred are higher than estimated.”

Someone please come up with real estate price indices for India!

• Daily Wealth: When This Investor Speaks, Buffett Jumps

. . . a reporter asked Charlie how he felt about regional banks. Charlie replied, “For somebody who’s very diligent, you’ve identified a prospecting territory that has some promise… The questioner is on to something.”That’s when Buffett told the crowd it was the most bullish recommendation he’d ever heard from Charlie.

• Investors Insight: Joining The Dark Side: Pirates, Spies and Short Sellers

The parameters I used to define my shorts were a price-to-sales > 1, an F score of 3 or less, and total asset growth in double digits. This proved to be a powerful combination. Between 1985 and 2007 a portfolio of such stocks rebalanced annually would have declined over 6% p.a. compared to a market that was rising at the rate of 13% p.a. in Europe! Although I’ve not shown the result below, similar findings were uncovered for the US as well.

• Mint: Power target may slip by 20% on bad roads

India could miss by 20%, or 13,855MW, its target of adding almost 70,000MW of power over the next four years because of poor transport infrastructure. Currently, India has a power generation capacity of 143,000MW and it plans to add 78,577MW of generation capacity by 2012. With the country adding only 9,300MW of generation capacity in 2007-08 against a target of 12,000MW, a capacity addition target of 69,277MW is to be achieved in the next four years.

A case in point is NTPC Ltd’s Sipat power project turbine being stuck at Kasara Ghat on NH3 between Mumbai and Nashik for around six months because the road was not ready to take the load.

Long HCC?

• Financial Express: Inflation may be revised to 10%: Economist

India’s inflation rate may be revised to 10 per cent from the latest estimate of 7.82 per cent as data for prices of different commodities is updated, London-based publication The Economist has said.

It further said if measured correctly, five of the ten biggest emerging economies could have inflation rates of 10 per cent or more by mid-summer. “Two-thirds of the world’s population may then be struggling with double-digit inflation.”

Will the real inflation please stand up? And as for putting your money in fixed deposits - fuggedaboutit.

• IDD Magazine: Following The Money

As more revenue flows into the Middle East and North Africa (MENA) region, investment banks are moving greater numbers of professionals there to take advantage of the resulting opportunities.

Asset management, foreign exchange, Islamic finance and M&A advisory opportunities are some of the attractions for banks, and some of th wealthiest prospective clients in the region are sovereign wealth funds.

“Dubai started earlier than other regional centers, but there’s a tremendous amount of investment going into Doha, for instance. In the scheme of things, it’s quite a young region despite its tremendous history.” Besides Abu Dhabi (which, like Dubai, is part of the United Arab Emirates), Jenkins predicts Cairo could become an influential regional hub for international financial institutions, along with Manama, the capital of Bahrain, and Riyadh and Jeddah.

• Via Big Picture, Barrons: Barron’s Interview with Sy Jacobs

Looking ahead, what do you see for the financials?

We believe the recent rally in financial stocks — and for the whole market — is a bit of a head fake that will prove to be a bear-market rally.

What’s your premise?

After first ignoring subprime, people now are too focused on it and they’re missing the broader storm coming — that’s the head fake. While the bursting of the housing bubble produced all sorts of headline-making losses for some, it is just starting to drag down the rest of the economy. Separate from subprime, you are seeing diminished ability for consumers to spend their home equity. The securitization market, which banks and finance companies use to get funding, has slowed. So we see consumer and business spending slowing; the economy will falter.

• Business Standard: Melting under pressure

The difference of about $100 a tonne in the domestic and international steel prices is attributed to the Indian government’s recent cap on steel prices, which restricts the upside for steel players.

Additionally, the imposition of export duty on steel will only discourage exports leading to lower volumes. This cap on finished product prices comes at a time when companies are feeling the pain of unprecedented rise in input costs such as coking coke (up 200 per cent in the last year) and iron ore (up 65 per cent).

The domestic steel demand is growing at over 11-12 per cent, whereas the supply is lagging at about five per cent. As major expansion plans are expected to go on-stream from financial year 2009-10, except for the 1.8 million tonne expansion of Tata Steel (expected by June 2008) and 3 million tonne expansion of JSW Steel (expected by September 2008), the supply of steel is expected to remain tight.