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For private circulation

Vol 1 Issue 6 June 2012

A Monthly Financial News Letter from RBG Commodities

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The problems are not in Greece

DEPRECIATION OF INDIAN RUPEE

A SWORD TOWARDS INDIAN ECONOMY

Last weeks news that the GDP grew by 5.3% in the first three months of this year is a very alarming news to all of us. Warning lights flash on Indias economic dash board with manufacturing output and consumer demand fading as well as Corporate investment, fiscal and trade deficit growing rapidly with the inflation going out of control. The reason that our Finance Minister is pointing is th weak the Global sentiments as well as the Reserve bank of India for its tight monitory policy. Passing the blame to Euro zone crisis is a convincing excuse. We managed quite well in the previous crisis when global economic situation was far worse. As a slew of data from all corners be it slew cornersGDP numbers, dismal performance across the sectors or a slowdown in private investment raises red flags, it is obvious that investmentthe rot is internal. While private investment is the need of the hour, what is happening in the country is just the opposite. The Government consumption is on rise and that too at the cost of private consumption. This has crowded out private investment and brewed up an inflationary environment. "There is so much denial, but almost all of the problem in India problems are self-inflicted," said Rajeev Malik, senior economist at CLSA inflicted," Singapore. "The Indian situation is ... an outcome of policy incoherence, a government that's asleep." Economists say New Delhi's policy inertia and the absence of significant reforms to sustain growth have now turned India's orms slowdown from a cyclical one to something that is structural or systemic. J.P Morgan chases India chief economist, Jahangir Aziz said, What the Government needs to do is begin by admitting that the problem lies not in Greece, but at Home. Ten-year government bonds rallied the most in three weeks, with year the yield on the 8.79 percent note due November 2021 dropping 15 basis points, or 0.15 percentage point, to 8.38 percent. The rupee touched an unprecedented low of 56.515 per dollar before strengthening to close 0.2 percent higher at 56.11. It has slumped 20 percent in the past year. The BSE India Sensitive Index (SENSEX) of stocks fell 0.6 percent. The picture ahead does not look very bright. Fuel prices are . already on the upswing. The decision regarding prices of diesel will lead to a no-win situation - we will have to live with higher inflation or unmanageable deficits. The domestic currency seems to be trapped in a vicious cycle. The higher outflows on imp imports are adding downward pressure on rupee and fuelling inflation. This further clouds the possibility of softening of interest rates. To get back the global confidence in Indian economy, it's time that the Government gets its policies right, even if it c comes at the cost of a temporary slowdown. But the first step will be to stop passing the buck and to own up for the mess we are in. Else it won't be long before a two trillion GDP dream ends up falling victim to colossal mismanagement of economy.

On the first week of April we were able to buy one US $ for Rs. 51 but by the end of May we need to pay Rs 56.50. Such huge depreciation of the Indian Rupee made significant impact on the Indian Economy. Higher Dollar purchase by Oil marketing Companies is the main reason for the weakness in the Indian Rupee. The higher import bill means that the Country's fiscal deficit will increase and stoke the inflation even more. India has run up an increasing current account deficit presently 4.1% of the GDP deficit-presently GDP-to fund its explosive growth. With the capital flow restrained by a poor fundamental outlook, lack of policy decisions and debt redemption risks, this is likely to extend India's balance of payment deficit beyond a couple of years. This was manageable while the world was in a world risk-on mode, resulting in an abundant portfolio and FDI flows to Asia. on A sharp appreciation of the rupee seems unlikely at the moment, for which the weakening domestic fundamentals are to blame. The government went in for consumption consumption-oriented fiscal strategies after the Lehman crisis, but no attention was paid to enhancing the long longterm growth of the economy. The natural corollary was a rise in fiscal deficit, a fall in domestic savings and a sharp rise in imports, including the effect of oi prices. oil Technically, USD INR pair showing a weakness and we are expecting that and it will not fall below 55.15 levels, and expecting to the levels of 57 in the months to come. Various sources claiming that Central Bank stepped in with what various dea dealers described as "massive" intervention, signaling intent to defend the beleaguered domestic currency. Some dealers said the dollar sales via state run banks was to the tune of $400 state-run $400$500 million, and continues a pattern of aggressive interventions this month as the rupee month has threatened to touch a record low of 54.30 hit in December. But considering the Indias decline in GDP Growth rate and worries over the developed economies may prevent Rupee from such a huge appreciation from the present levels of Rs. 55.50 56.00. The weakness in the International Dollar prices due to the heavy inventory may restrict Oil Marketing companies from heavy Dollar purchases in the near term. We can expect that the Dollar will trade in the range of 55.10 56.10 till mid of June 2012 due to Crude weakness and after that we can expect rise in USD INR Pair.
Sandeep Chandran, RBG research

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EQUITY MIRROR
Equity Markets has given shock to the market participants as NSE Bench mark Nifty fell below psychological mark of 5000 levels due to bad news flows from Europe. Greece failed to constitute Government and resulted in huge selling across the globe. The weakness in the Rupee against dollar added fuel to the falling of Indices. Nifty touched low of 4788 in the month of May from the levels of 5279. The market corrected sharply during the latter half of the May as India's GDP growth numbers for Q4FY12 came in at just 5.3% as against consensus estimate of 6.1%, which was 9 year low. A break-up of the supply side of GDP suggests widespread weakness across supply segments. The weakness was most pronounced in the manufacturing sector. For the first time, since the start of the new base year, manufacturing segment dipped 0.3 per cent in the March 2012 quarter over a year ago. That held back the annual growth in manufacturing to just 2.5 per cent. The barometer index, BSE Sensex, lost 6.35% in May 2012 on Euro-Zone debt worries. Concerns about Greece's possible exit from the European Union rattled global equity markets after the splintered results of a Parliamentary election on 6 May 2012 left no party able to put together a Government. That led the country to call another Election on 17 June 2012. The next important watch for the market is the progress in Monsoon. Technically the level of 4980 on Nifty seems to be a Resistance and Support is seen around 4750 levels. The long term Investors can go for a value picking from the present levels of markets. We are recommending Banking sector as an investment sector for the investors who are looking for low risk profile investment. The Dollar Rupee movement will be a crucial factor for the Indian Indices. From the latest Information from SEBI, FIIs were net sellers in the month of May for about nearly 370 Crores. During the second week of June the Commerce ministry will announce trade policy for the year 2012 2013. .The economic crisis in the US and Europe is hitting India's exports. Both these markets account for about one-third of country's total shipments. The expansion in the country's merchandise exports, which grew by as much as 82% in July 2011, came down to 3.2% in April 2012 due to the demand slowdown in western markets. The performance of the global Indices is crucial for the Indian market. The news flows from Europe and US are going to reflect on the Global Indices. There is much news about next Quantitative easing in US. If any such announcements hit markets, it will push global Indices to higher levels.

COMMODITY MIRROR
Month of May was given bad returns to the Bulls. The negative news flow from the developed economies caused selling in the Metals and Energy Futures. Moreover steps taken by exchanges under FMC directives on Agri - Commodities also resulted in selling on those Commodities. Pepper: In the month of May Pepper June contract made a high of 40910 on first week and made a low of 35830 by the mid of May, but it recouped majority of the losses by the end of the month and managed to trade in the range 39500 40000. The correction from the 40900 levels was moreover a technical correction, as it trades at overbought levels. The rumors about the arrival from the Srilanka also resulted in selling. Meanwhile, Vietnam reported that it has already shipped out an estimated 62,000 tonnes of pepper which means more than half of this years crop is already gone. Consequently, some time later this year, Vietnam will run tight, it is claimed. Rubber: In the month of May, Rubber was trading in the Range of 19100 19800, the activity in the counters were very minimal. The falling of the Crude oil prices internationally made some pressure on Rubber prices. Technically, Rubber has support around 18800 levels and resistance around 19550 levels. By considering the arrivals of Monsoon in Kerala, the short term traders can take long positions in rubber contract. Crude Oil: In the Month of May, Brent crude oil prices fell below $100 a barrel to a 16-month low, as weak US and Chinese economic data thrashed markets and sent investors to perceived safer havens. Data showing US job growth stumbled in May and the jobless rate rose for the first time in nearly a year, added to worries about the global economy's health. A report from No. 2 oil consumer, China, indicated a slowdown in that country's manufacturing sector, which dragged Crude down early on Friday. Technically at International Levels NYMEX Crude has support around $80 / barrel and resistance is seen around $ 87/ barrel. Bullions: Bullion prices closed sharply higher, near the daily high and hit a fresh three-week high on last Friday in the Month of May. The yellow metal bulls are right back in business as strong safehaven demand and panic short covering put a strong bid into prices Friday. A much-weaker-thanexpected U.S. jobs report quickly put U.S. quantitative easing of monetary policy back on the table. Considering technically, bullion prices expected to trade higher in the Month of June. On a longer-term technical basis, the Gold bulls never lost their overall technical advantage as prices are still in an 11year-old uptrend from the 2001 low of $255 an ounce. A three-month-old downtrend on the daily bar chart was negated with Fridays strong gains. The gold bulls next upside price breakout objective is to produce a close above solid technical resistance at the May high of $1,674.30.
RBG Research
RBG Research

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Disclaimer: This electronic news letter is only an information service. Informations are collected from different sources which are believed to be reliable, but are not guaranteed by RBG Commodities about the accuracy. RBG Commodities does not assume any responsibility or liability resulting from the use of the information given.

Editorial Board: Shijo Jose, Sandeep Chandran, Vishal Dand RBG Commodities Limited, VI/93, Jew Town, Cochin 682002. Tel: 0484-2588841/43/44/48