Solving The Commodity Complex Puzzle: C O M M O D I T I E S

commodities. commodities.
Fo r Pr i vate Ci rc u l at i o n Vo l u m e 1 Is s u e 2 2 14th Dec ’09

Commodities is a cyclical business, Of late I have been seeing a disc
which is broadly driven by demand nect between demand and supply
and supply of underlying. After many commodities, where suppl
crude oil prices touched the level of outpacing demand. Despite ris
$147/barrel, the demand started to supply from Russia since the
wane as prices rose; supplies were four months and OPEC memb
outpacing demand by huge margins not sticking to their quota com
causing a bust. ance, crude oil prices have touc
$80/barrel, where as demand
The rush of liquidity has disarrayed hasn’t picked up in the US, the la
this cycle. Weaker dollar, dollar est consumer of crude oil.
carry trade, stimulus packages and
lower interest rate regimes pumped Since the last two months, des
in greater liquidity, which is being the rise in production and a drop
parked in a few commodities. The imports in China, base metals pr
investment demand for commodities have been moving up. Also price
has been picking up at a rapid pace gold futures have been moving
as investors are investing in com- despite the fall in demand in Indi
Solving the
C H I L L I
1 2
C O M M O D I T I E S
A R D A M O M
Commodity 3
K A P A S K H A L I
Complex
G U A R G U M
I N V E N T O R I E S
Puzzle
4 6 5
L U M I N I U M G O L D
It’s just a year and to most people it

W E A T H E R
7
seems that we are out of the worst
S O Y O I L
global recessions so far. Commodi- 8 9 10
A I Z E X P O R T S
ties have given investors a lot of
reasons to celebrate this Christmas.
Z I N C
P E P P E R
Precious metals, base metals, ener- 11 12

gies and agro commodities have O T A T O
been rallying since the start of the
year. 13
E U R O
Y E N
What was so different between 2008 14 15 16

O P P E R S U P P L Y
and 2009? Liquidity. The biggest
concern in 2008 was liquidity as
banks were reluctant to lend. Central 17 18
banks responded by infusing trillions J E E R A S I L V E R
of dollars into the global economy in
the form of stimulus packages in the modities in order to hedge against a and UAE due to high prices. In a
first quarter of 2009. It’s not just weaker dollar and inflation. The commodities, due to sharp rise
fundamentals which are driving increasing interest from sovereign prices demand from stockists
prices of commodities. Too much wealth funds is also putting an fallen considerably.
DB Corner – Page 4
It’s Time To Wake Up

Sovereign Wealth Funds (SWFs) are likely to pick up strategic equity stakes
in commodity firms in the coming quarters – Page 7
The Dollar Jugglery

All eyes are set on the direction the universal currency will take in the
coming quarter as the fate of risky assets hangs on it – Page 12
Good Weather Best

Awareness about weather conditions and water supply requirements at
various stages of a crop’s life cycle, can help investors take smart decisions in
agro commodities – Page 15
A Barometer Worth Watching

The Baltic Dry Index is an indicator of shipping costs of dry bulk commodi-
Volume 1 Issue: 22, 14th Dec ’09 ties and can prove beneficial if used judiciously – Page 18
Editor-in-Chief & Publisher: Rakesh Bhandari Strike While It Is Hot

Editor: Tushita Nigam The long-term outlook on the complex still remains positive as China’s
Senior Sub-Editor: Kiran V Uchil strong will to become a developed nation and its ambitious plans are likely
to drive the demand for industrial metals in the coming months
Art Director: Sachin Kamble Interview with Surendra Mardia, President of Bombay Metal Exchange
Ltd – Page 22
Research Team:
Kunal Shah
Michael Pillai Land Of Opportunities
Shivali Chipkar Agricultural commodities, as an asset class, can boost your portfolio with
Vikash Bairoliya handsome returns
Interview with Ramesh Karania, spice merchant and owner of Indian
HEAD OFFICE Spices – Page 31
38-B/39, Khatau Bldg, 2nd Flr,
Alkesh Dinesh Mody Marg, Fort,
Mumbai - 400 001 A Silver Lining
Tel: 022 - 22641234, 30272000 / 2222 Silver, the poor cousin of the yellow metal, looks ready to hog the limelight
Fax: 022 - 30272006 in the coming months
Interview with Suresh Hundia, President of Bombay Bullion Association
CORPORATE OFFICE
B-2, 301/302, Marathon Innova, – Page 36
Off Ganpatrao Kadam Marg,
Lower Parel (W), Cotton: India’s White Gold
Mumbai - 400 013
The outlook for Indian cotton looks bullish due to the increase in demand
Tel: 022 - 30272300; Fax: 3027 2303
Web: www.nirmalbang.com from China, Bangladesh and Pakistan – Page 42
We, at Beyond Market welcome your views,

Technical Outlook For The Fortnight – Page 50
comments, inputs and feedback.
Do help us to grow better as per your liking.
This is our attempt to reach you better while
crossing horizons...
beyondmarket@nirmalbang.com
Tel no: 022 - 30278232
Beyond Market 14th Dec ’09 It’s simplified...

3
More Than Just Wordplay
C H I L L I
1 2
A R D A M O M
B etter known as a hedge against inflation, commodity trading is now a growing asset class. The commodity
complex gives traders and investors alike the opportunity to hedge against the uncertainties that can give rise
to varied price fluctuations. Being unrelated to other investment avenues, trading in commodities acts as a
shield in a crisis. 3
K A P A S K H A
But deciphering the trend is not as easy as understanding the various commodities. A number of direct and
L I
indirect factors influence the price variant. However, the fact remains that commodity trading is a sought-after
investment tool and an important component of an ideal investment portfolio.
G U A R G U M
I N V E N T O R I E S
4Commodity Exchanges have been set up to make trading

6 in commodity futures more 5
transparent and also to
L U M I N I U M G
reach a larger audience. The list of commodities that can be traded through the Exchange is increasing by the O L D
day, thus making commodity trading an integral part of the financial system in India.
Commodity prices are making new highs. How could we miss the bus? It was therefore important to bring out
W E A T H E R
a sequel on commodities so that our readers would be able to take informed decisions while investing and
trading in commodities. 7
S O Y O I L
Commodities are influenced not only by demand and supply factors but also by weather conditions and
9 necessary to throw light on such topics. Among these,
8currencies to name a few. We therefore thought it was 10
A I Z E X P O R
we have covered the growing importance of Sovereign Wealth Funds, the fate of the universal currency - the T S
dollar, the Baltic Dry Index - an important barometer of shipping costs of dry bulk commodities, different
weather conditions that affect agro commodities and opportunities in them.
Z I N C
P E P P E R
Among complexes, base metals and agro commodities are likely to be good bets and can give opportunities to
11 earn good returns12
in the long run. Silver and cotton are two specific commodities that are taking the fancy of
O T A T O
many in the commodity arena. Hence we thought it was imperative to cover these two commodities in detail.
This issue features interviews of Bombay Metal Exchange Ltd president Mr Surendra Mardia, Bombay
Bullion Association president Suresh Hundia as well as spice merchant Mr Ramesh Karania. The trio has
shared their insights on their area 13
of expertise.
E U R O
Beyond Market would like to thank the commodity research team at Nirmal Bang for contributing and
Y E N
14 piecing this special issue together. Special thanks to Kunal Shah,15

Vikash Bairoliya, Evelyn Rodrigues, 16
O P P E R
Devidas Rajadhikary, Anuj Agarwal, Swati Jain and Sunit MehtA. S U P P L Y
Tushita Nigam
17 18 Editor
J E E R A S I L V E R
4
Among sectors,
pharma, auto
and auto ancillaries
look attractive.
I
n the pervious week, the government unveiled Larsen & Toubro Ltd (LTP: Rs 1686.55), Tata Motors
data showing that food inflation had risen 17.47% Ltd (LTP: Rs 712.90) and Mahindra & Mahindra Ltd
in 12 months to 21 Nov ’09, accelerated from (LTP: Rs 1040.25). Stocks that can be considered as
previous week's level of 15.6%. Though there are investments are Gabriel India Ltd (LTP: Rs 31.90),
concerns of a rise in inflation due to continued price Banco Products (India) Ltd (LTP: Rs 85.45), Lakshmi
pressure, the markets are still looking good. Machine Works Ltd (LTP: Rs 1761.80), Gujarat State
Petronet Ltd (GSPL) (LTP: Rs 98.40) and Bharat
The central bank is taking small steps towards the Electronics Ltd (LTP: Rs 1911.30) at declines.
withdrawal of its accommodative measures. Given the
improvement in the equity markets, the RBI has With the regulatory authorities’ confidence reflected
withdrawn some concessions on overseas borrowing in the market through different measures, despite
for Indian firms introduced during the global credit inflationary concerns, the market is expected to
crisis from 1st Jan ’10. remain buoyanT.
The Nifty is finding support at the level of 5,040 and

the 4,980 level thereafter. On the upper side, the Nifty
has resistance at the 5,450 level. If it breaches this
level, the Nifty could go up to the level of 5,700.
Traders can buy at current levels as well as on
Sensex: 17189.31
declines. Nifty: 5134.65
(As on 10th Dec’09)
Among sectors, pharma, auto and auto ancillaries look Disclaimer
It is safe to assume that my clients and I may have an investment interest in
attractive. In the pharma sector, traders can look for the stocks/sectors discussed. Investors are required to take an independent
decision before investing. Investment in equity is subject to market risk. Our
buying opportunities in Biocon Ltd (LTP: Rs 287.15), research should not be considered as an advertisement or advice, professional
Cipla Ltd (LTP: Rs 343.60) and Aurobindo Pharma or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and
Ltd (LTP: Rs 870.70). Other stocks looking good are the like and take professional advice before investing.

5
Another Party Round The Corner!
C H I L L I
1 2
It’s just a year and to most people it seems that we are out of one of the worst global recessions
A R D A M O M
so far. Commodities have given investors lots of reasons to celebrate this Christmas. Precious
metals, base metals, energies and agro commodities have been rallying since the start of the year.
What was so different

3 between 2008 and 2009? Liquidity. The biggest concern in 2008 was
K A P A S K H A
liquidity as banks were reluctant to lend. Central banks responded by infusing trillions of dollars
into the global economy in the form of stimulus packages in the first quarter of 2009. It’s not just
L I
fundamentals which are driving prices of commodities. Too much money seems to be chasing few
commodities.
G U A R G U M
4 I N V E N T O R I E S
6 driven by demand and supply.5After crude oil
Commodities is a cyclical business, which is mainly
L U M I N I U M G
prices touched the level of $147/barrel, the demand started to wane as prices rose; supplies were O L D
outpacing demand by huge margins causing a bust.
The rush of liquidity has disarrayed this cycle. Weaker dollar, dollar carry trade, stimulus
W E A T H E R
packages and lower interest rate regimes pumped in greater liquidity, which is being parked in a
7 demand for commodities has been picking up at a rapid pace
few commodities. The investment
as investors are investing in commodities in order to hedge against a weaker dollar and inflation.
S O Y O I L
The increasing interest from Sovereign Wealth Funds is also putting an upward pressure on the
8 9 10
prices of commodities.
A I Z E X P O R T S
Of late, I have been seeing a disconnect between demand and supply in many commodities, where
supply is outpacing demand. Despite rising supply from Russia since the last four months and
OPEC members not sticking to their quota compliance, crude oil prices have touched $80/barrel,
Z I N C
P E P P E R
whereas demand still hasn’t picked up in the US, the largest consumer of crude oil.
11 12
O T A T O
Since the last two months, despite the rise in production and a drop in imports in China, base
metal prices have been moving up. Also, prices of gold futures have been moving up despite the
fall in demand in India and UAE. In agro commodities, due to sharp rise in prices, demand from
stockists has fallen considerably.
13
E U R O
All this makes me believe that a correction in commodities looks imminent after rallying through-
Y E N
out the year. Economic reports across the globe have been positive since the last few months but
14 it has already been discounted where the prices of commodities15are concerned. 16
O P P E R S U P P L Y
Traders and investors across the globe have increased their exposure in commodities. The secular
bull run in commodities is likely to stay. Before the next leap, a healthy correction in commodities
is more desirable and this correction should be taken as a breather before the next party in
commodity complexes beginS.
17 18
J E E R A S I L V E R Kunal Shah
AVP Commodity Research
6
S
overeign Wealth Funds are not a new phenom- according to its nation’s strategic objectives. Countries
enon. They have been discussed for many like China, Singapore and Korea are some of the
years, but their importance has risen consider- examples of this kind.
ably since the start of the recent global financial
crisis. Governments with revenue streams dependent on According to the official website of the Sovereign
the value of one underlying commodity, through exports, Wealth Funds Institute, in September the total assets
often pursue diversification of investments by setting up under management of the SWFs were $3,752 billion with
bodies and allocating funds with the goal of stabilizing natural resource rich nations contributing 61% (around
the revenues. $2,289 billion) of the total funds and countries with
current account surpluses and pension funds accounting
Thus, most SWFs have been established in countries that for the rest.
are rich in natural resources, with oil-related SWFs being
the most common ones. The foreign exchange wealth SWF To Foreign Currency Exchange Ratio
accumulated by these countries is used for investment
opportunities in different asset classes across the globe. This study is conducted to understand what proportion of
This wealth is accumulated through revenue generation a country’s foreign exchange reserves has been recog-
by exporting its natural resources. nized and allotted to Sovereign Wealth Funds. It can be
noted that some oil-producing nations have leveraged
Also, countries which accumulate a substantial propor- more funds to its SWF vehicle than its foreign currency
tion of foreign exchange reserves through a positive exchange reserves, thus reflecting a more aggressive
balance of trade by substantial amount of exports of its stance to seek higher returns. Countries like Saudi Arabia
merchandise and invisibles, allocate their earnings. They (110%), United Arab Emirates (1642%), Bahrain
do this by setting up investment arms which seek invest- (403%), Kuwait (1033%) and others are some of them.
ment opportunities worldwide, with a view of diversifi-
cation, stabilization and maximizing returns and work Some non oil-producing countries have also done well to

7
park a substantial amount of foreign exchange reserves in demand meter indicates how asset allocations, sectors
the Sovereign Wealth Funds; China (32%), Singapore and investment strategies rank.
(203%) and Australia (106%) are some of the non oil
-producing countries which have done extremely well in Over the next three quarters, Sovereign Wealth Funds
accumulating foreign exchange reserves, with China (SWFs) are expected to pick up strategic equity stakes in
topping the list. It has, therefore, allotted a substantial commodity firms that have scored a nine, suggesting a
amount of its reserves to its SWFs in accordance with its preferred option among other investment avenues as
strategic choices and decisions. shown by the Consensus Demand Meter.
SWF To Foreign Currency Exchange Ratio Equity holdings in the oil sector are also attractive, with
In mw Total SWF* Reserves Ratio (%)** crude prices having risen consistently for the past four
China 723.3 2273 32
months. The effects are already visible as China is
UAE 738.9 45 1642 acquiring stakes in oil exploring firms and stockpiling
Saudi Arabia 436.3 395.467 110 various metals thus adding to its strategic reserves.
USA 45.1 83.375 54
Consensus Demand Meter Q3 2010
Singapore 369.5 182.038 203
Consensus Meter
Australia 49.3 46.5 106 Raw Land
Russia 178.5 441.7 40 Equities - Hospitality
Deep Discounted Mortgage Debt
Norway 445 45.117 986
Emerging Market Equity
Bahrain 14 3.474 403 Passive Equity
Kuwait 202.8 19.63 1033 Credit Facilities For Public Corporation
Cash
Kazakhstan 38 19.974 190 Market Neutral Hedge Funds
India - 285.52 - Landmark Real Estate (Japan, US, UK)
Japan - 1052.6 - Brazilian Sovereign Debt
Distressed Debt PE
UK - 83.935 - Equities - Oil Sector
Amount: In Billion US $ Strategic Equity In Commodity Firms

Source: Wikipedia, NB Research
0 1 2 3 4 5 6 7 8 9 10
*Total SWF figure is the summation of all the assets under manage- Source: SWF Institute
ment of the Sovereign Wealth Fund bodies floated by a nation. World Historical And Predicted Population & It’s
Impact On Natural Resources
** Parentage Ratio has been calculated through secondary research
with the latest figures being updated on the internet and has been
rounded-off to the nearest figure. According to the World Bank, the current world popula-
tion stands at 6.7 billion and has grown significantly over
While some developed and developing countries includ- the years. In the year 2050, the population is expected to
ing Japan, India, UK, etc have still not floated any invest- reach 8.9 billion and it will be 9.75 billion in the year
ment vehicle SWFs and are still presuming ways to do 2150. The natural resources are vanishing at an alarming
the same. rate. It is said that we would need five more Earths to
produce the resources needed if the population and
Although India is ranked sixth in the world in terms of consumption keep on increasing at the estimated rate.
foreign exchange reserves held by regions of the world,
the government has still not set up an investment arm that World Population
uses its foreign exchange reserves and seeks investment 12000 (In Millions)
opportunities abroad. 10000
8000
On the other hand, smaller countries not as developed as 6000
India, are making the most of the financial opportunities 4000
worldwide through investments. So, it’s now time for the 2000
sleeping tiger to wake-up while its neighbours continue 0
to roar. 1750 1800 1850 1900 1950 1999 2008 2050 2150
Year
SWF Consensus Meter (A Strategy Evaluation Tool) Source: Wikipedia, NB Research
A report by International think tank, the Global Footprint

The SWF Institute's Consensus Demand Meter is an Network states that every year we use resources equiva-
indicator to track and predict what Sovereign Wealth lent to nearly one-and-a-half Earths to meet its needs.
Funds would demand in the next three quarters from the And if we continue to use natural resources and produce
relative start date. Going forward three quarters, the waste at the current rate, it will require resources of two
8
planets to meet the demand by 2030. Thus, this ideology Some investments made by China across the world are
has prompted many a nation to diversify and stabilize its mentioned below: China Investment Corporation
economy by searching for opportunities worldwide to acquired 17.2% stake in Canadian miner Trek Resources
gather natural resources and build upon the strategic which owns mines of gold, zinc and copper. The Chinese
reserves for future generations. FDI in Canada tripled over 2005 levels to reach around
$2.8 billion in 2008.
SWFs And India: Do We Have It In Us?
Forex Reserves Growth (US Billion $)
India is the sixth largest region of the world in terms of 2500
China Reserves India Reserves
the Foreign Currency Exchange reserve held by the
government. It accounts for nearly 3% of the total foreign 2000
currency reserves held by the nations of the world.
1500
China, on the other hand, has the largest share. It
accounts for nearly 1/4th of the total foreign currency
reserves of the nations of the world. 1000
Foreign Exchange Reserves 500
Others - 49%
OPEC - 10% 0
2008
2009
2005
2006
2007
2003
2004
2001
2002
1998
1999
2000
1995
1996
1997
China - 25%
Japan - 12%
India - 3%
USA - 1% Chinese FDI in Argentina increased to $157.19 million
in 2007 from $1.05 million in 2003. China National
Petroleum Corporation and China National Offshore Oil
Corporation are bidding for around 84% stake in
Argentina’s biggest oil company.
China Investment Corporation paid nearly $1 billion to

Source: Wikipedia, NB Research buy an 11% stake in JSC KazMunaiGas Exploration
Production, Kazakhstan oil and gas company.
There has been a spurt in the number of nations buying
gold after India bought around 200 tonnes of the yellow China Investment Corporation also paid $850 million to
metal from the IMF at $1,045 per tonne. Since then, gold acquire 14.9% of Noble Group, the Hong Kong
has been trading above that level on the COMEX and has commodity-trading powerhouse.
touched a record high of $1,125.
Chinese state-owned enterprise CNOOC Ltd is trying to
China, on the other hand, has been very active in building buy 6 billion barrels of oil - or sixth of the proven
its strategic reserves in energies as well as metals. In the reserves in Nigeria. This move could put China in
recent past, China filled its first 100 million barrels of competition with Royal Dutch Shell PLC, Chevron and
onshore emergency crude oil tanks and invested in Exxon Mobil Corp. These companies control all or parts
acquiring African oil reserves also. It has been a constant of the 23 oil blocks sought by China.
importer of industrial metals from across the globe.
The Chinese FDI in South Africa increased from $44.77
China has been seeking investment in industrial metals million in 2003 to $702.37 million in the year 2007. The
since the start of the financial crisis when the prices of state-run Industrial and Commercial Bank of China
these metals were hit the most. At the start of the year, bought a 20% stake in South Africa’s Standard Bank for
copper was trading at around $3,200 per tonne and $5.2 billion.
recently copper traded above $7,000 on the London
Metal Exchange (LME). Baosteel Group, China’s largest steel mill bought around
15% stake in Australia’s Aquila resources for $240.4
China has already stockpiled large quantities of such million. China’s FDI in Australia increased from $1.4
metals to its strategic reserves through increased produc- billion at the start of 2008 while it increased to $13
tion measures and imports. billion during the same period in 2009.

9
Chinese Commodity Reserves During Year 2009 are up by more than 50% to 60%. In case of gold, the
demand is expected to be more than 450 metric tonnes
Aluminium (In Tonnes) compared with 395.6 tonnes in 2008 as advertisements
State Reserve Bureau 5,90,000 on State-run television channels were seen promoting
Henan Province 5,00,000 gold and silver coins.
Gunaxi Region 2,00,000
Yunnan Province 1,80,000 Commodities are the base for economies. If economies
have to grow, commodity prices should also move up.
Copper (In Tonnes) These huge reserves of commodities have helped China
to diversify its foreign exchange reserve. It has been
State Reserve Bureau 2,35,000 partly hedging against the weaker dollar and any sharp
Yunnan Province 2,000 appreciation in prices of these commodities would also
benefit them.
Nickel (In Tonnes)
State Reserve Bureau 10,000-30,000 Natural resources are scarce and it’s time developing
countries start thinking about building strategic reserves
Lead & Zinc (In Tonnes) for commodities if they do not have one.
State Reserve Bureau 1,59,000 (Zinc)
Shanxi Province 77,000 (Lead & Zinc) India & Singapore: One More Lesson For The Tiger
Yunnan Province 2,36,000 (Zinc)
1,04,000 (Lead) Singapore’s foreign exchange reserves are around $182
billion, while that of India is around $286 billion.
Tin (In Tonnes) Singapore’s SWF Temasek Holdings is an active state-
State Reserve Bureau 1,00,000-1,30,000 owned enterprise, seeking returns through investments in
various asset classes in different projects across the
Titanium (In Tonnes) globe. Temasek has a book value of S$118 billion, up
80% from March ’04.
State Reserve Bureau 5,000
The exposure of its portfolio is 31% in Singapore, 43% in
Natural Rubber ( In Tonnes)
the rest of Asia (27% in North Asia, 9% in ASEAN, 7%
State Reserve Bureau 65000 in South Asia), 22% in OECD economies and 4% in new
markets such as Latin America, Russia and other regions.
White Sugar ( In Tonnes)
China Merchandise 8,00,000 Let us look at India’s applications of the foreign
Reserve Management exchange reserves.
Centre
Deployment Pattern: Foreign Currency Assets
Gunaxi Region 4,00,000
(US $ Million)
Source: Reuters
As on As on
31 Mar’09 30 Sept’09
The Indian economy rose by 7.9% in the second quarter Foreign Currency Assets 241426 277300
of FY09, belying analysts’ expectations of 6.3% growth (a) Securities 134792 111287
for the period. If India has to grow in the coming years, (b) Deposits with other 101906 160587
then it needs a strong infrastructure, which is considered Central Banks BIS & IMF
as the platform for launching itself to the next level of (c) Deposits with foreign 4728 5426
commercial banks/funds
growth. During the last quarter of year 2008, most placed with EAM’s
commodities from metals to agro were trading at their Source: RBI
multi-year lows.
Temasek Holdings comparatively has a more diversified
China has set a example for all developing countries on portfolio than India. The returns generated by Temasek
how to beat the recessionary blues. China’s State Reserve Holdings since its inception is 16% compounded
Bureau and various provinces started buying commodi- annually as per the market value as well as the sharehold-
ties as it remained the top consumer for these commodi- ers’ funds. India’s rate of earnings on foreign currency
ties and prices were trading at multi-year lows. assets and gold, after accounting for depreciation,
increased to 4.8% in 2007-08 from 4.6% in 2006-07.
Once buying emerged from various Chinese organiza-
tions, prices started to move up and today most of them Last year due to the global financial crisis, Temasek
10
Holdings’ returns accounted a negative 30%. And India, Deployment Pattern: Foreign Currency Assets
due to its conservative approach, has been able to gener- (US $ Million)
ate a positive return of 4.8%. But, this argument does Country Total Strategic Petroleum
Reserves (In Million Barrels)
not stand correct as a conservative approach does include
USA 727
an opportunity cost. And India has been a victim of China 481.34
opportunity costs over the past few years. Japan 579
South Korea 146
Strategic Petroleum Reserves Of Nations Russia 78
India 37.4
Strategic petroleum reserves refer to crude oil inventories Source: Wikipedia, RBI, NB Research
or stockpiles held by the government of a particular The question to ask is whether India has the power to
country as well as the private industry for the purpose of generate returns by seeking investment opportunities in
providing economic and national security during an commodities. The answer is in India’s favour with its
energy crisis. recent purchase of 200 tones of gold from the IMF.
Geo-political tensions between any two nations can take The main reason why India is lagging behind in this
prices of all metals and energies to their highest levels. arena is that all investment decisions are taken by the
For such situations we need to be self-sufficient in our government and the RBI. No special purpose vehicle,
resources. The Strategic Petroleum Reserves of India which can seek worldwide investment in commodities,
stand at 37.4 million barrels which is enough for called SWFs, has been floated by India till now.
two-week consumption at the prevailing consumption
rate of the country. The need of the hour for any individual, organization,
state or nation is to have savings, follow investment
China’s Strategic Petroleum reserves total about 481.34 practices and set up a Sovereign Wealth Fund.
million barrels and South Korea’s reserves stand at 146
million barrels, which is a 34-day storage capacity for the The rising geopolitical tensions have prompted countries
nation at the prevailing consumption rate. to have a substantial amount of resources as strategic
reserves. India, on the other hand, has been quite conser-
South Korea, a relatively smaller nation than India, has vative in its approach in access to natural resources of the
realized the importance of building its strategic reserves world. We certainly have all that it takes to build up a
and is making the most of the opportunities offered by SWF; but its time now to wake up and acT.
stockpiling commodities.
We don’t just help you invest your money, at Nirmal Bang it’s a relationship beyond broking
SMS ‘BANG’ to 54646 w w w. n i r m a l b a n g. c o m

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*Through Nirmal Bang Commodities Pvt. Ltd.
REGD. OFFICE: 38-B/39, Khatau Bldg, 2nd Flr, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 022 - 22641234, 30272000 / 2222, Fax: 022 - 30272006.

11
All eyes are set on the direction the
universal currency will take in the
coming quarter as the fate of risky
assets hangs on it
T
he dollar has witnessed a falling trajectory post
March this year without any respite whatso-
ever. A number of factors contributed to this
uit
Eq
slide - ongoing dollar carry trade and loose
monetary and fiscal policies at its forefront.
ies
D o ll a r
The Fed, by reducing the inter-bank lending rates to near
zero levels and signaling keeping the rates at this level
for an extended period of time, intensified the pace of the
dollar carry trade, marking a substantial unwinding of the
es yen carry trade.
d iti
m mo
Co Contemporarily, a carry trade relates to selling a currency
at relatively low interest rates and investing in risky
assets broadly in emerging markets. Traditionally, carry
trade was associated with investing in high-yielding
currencies.
Considering the last two quarters when the dollar lost

ground substantially, it virtually became borrowing at
Ye
negative interest rates. This phenomenon further under-

n
pinned this trade and thereby the dollar yielded to

unprecedented selling pressure.
Broadly the dollar index, a gauge of dollar performance

against the basket of six major currencies, lost little over
15% after the dollar carry trade emerged while the
Japanese currency gained about 14% following unravel-
ing of the yen carry trade.
Furthermore, weak economic fundamentals added to the

pressure on the universal currency.
The
Take into account the huge money sloshing by the US
government through stimulus packages in an effort to
revive the US economy from the worst recession so far
which has given way to a fiscal deficit to the tune of over
10% of the US GDP and the widening current account
deficit against the backdrop of a proportionately higher
Dollar
fall in exports than imports.
THE ROLE OF THE GREENBACK IN THE

ONGOING RECOVERY
Jugglery
Risky assets have appreciated considerably between 50%
and 100% after the repercussions of the Lehman bust
started subsiding around March ’09. Green shoots are
being observed in major indicators world over. The
question that needs to be raised now is - how real and
12
Return On Various Asset Classes ongoing rally seems to be driven largely by stimulus and
Gold Crude Copper MSCI S&P Dollar inventory cycles rather than significant improvement in
170
the private sector activity.
160
150
Nouriel Roubini, a distinguished economist who
140
predicted the sub-prime crisis in 2006, assumes the dollar
130
carry trade to be the mother of assets’ surge especially in
120
emerging countries.
110
100
He also predicts not just 2%-3% but 15%-20% rebound
90
in the dollar owing to the unwinding of the dollar carry
80
05 Apr’09 05 May’09 05 Jun’09 05 Jul’09 05 Aug’09 05 Sept’09 05 Oct’09 05 Nov’09 05 Dec’09
trade and thereby a sharp correction in risky assets.
All the prices are indexed to a base of 100 DOLLAR DEMISE SOUNDS TOO PREMATURE
Source: NB Research, Reuters
sustainable is this recovery? True, there is no room for Few market participants foretell the demise of the dollar
doubt that a chunk of appreciation in assets is against the in the foreseeable future which would mean a replace-
backdrop of revival in economies. ment for the dollar. The Yuan or Euro are considered as
a probable replacement for the universal currency.
But the other chunk is certainly supported by unprec-
edented liquidity infusion by central banks, creating an It sounds ridiculous considering the low acceptance of
artificial demand in the markets. these currencies as compared to the dollar. Add to it the
full convertibility issue with very limited international
One valid argument is the Fed treasury and mortgage appeal associated with the Chinese currency.
buyback exercise which kept the mortgage prices
artificially high by capping mortgage rates. Moreover, China may have expressed interest in making
Yuan the universal currency. But the talks sound hallow
Therefore, this development leads us to a situation where as a lot is at stake for China if the dollar collapses. Firstly,
we are targeting a short-term stability at the cost of a Chinese exports are largely driven by the US consump-
long-term instability. tion. Secondly, about half of China’s foreign exchange
reserves are held in the US currency.
It is openly argued by many economists that the latter
chunk is on the brink of creating a bubble in risky assets. Besides China, other nations too cannot afford to let this
This argument may not hold true as one needs to under- event take place. A look at foreign holdings of the US
stand that a 50% decline in asset prices cannot be equated treasuries clearly indicates that nations have hardly lost
with a 50% rise in asset prices which means that the asset any faith in this investment option.
prices are still 25% short of their pre sub-prime highs.
Major Foreign Holders Of US Treasuries
A strong correlation between risk appetite and weak
Countries Sep’09 Aug’09 Jul’09 Jun’09 May’09
dollar is another testimony to the fact that this recovery is
quite unsustainable. China
Japan
798.9
751.5
797.1
731.2
800.5
724.5
776.4
711.8
801.5
677.2
United Kingdom* 249.3 226.9 219.9 214 163.7
An observation shows that investors have dumped the Oil Exporters 185.3 189.1 189.2 191.2 192.8
Caribbean Banking Centres** 171.7 179.9 193.2 189.7 194.8
greenback post March ’09 following strong economic Brazil 144.9 137.3 138.1 139.8 127.1
data in pursuit of high yields from risky assets like Hong Kong 132.2 124.7 115.3 99.8 93.2
equity, commodities and risky credit products. Russia 121.8 121.6 118 119.9 124.5
India 35.9 38.5 38.9 39.3 38.8
Source: US Treasury Dept
This development signifies the view of the markets not *includes Channel Islands and Isle of Man
discounting any immediate reversal in the interest rate **include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama
cycles by the Fed in the current prices.
Agreed that the outlook for the dollar remains bleak for
A real recovery generally warrants a stronger dollar on the foreseeable future considering the intention of the
robust economic data that is in anticipation of an interest Fed to keep the rates at record low levels for an extended
rate hike in the foreseeable future. period of time and ballooning fiscal deficit in the US, but
assuming the weakness in the dollar as its demise would
Going by these arguments, in the US economy, the be a big mistake.

13
We need to understand that it is in the interest of nations ment Management (PIMCO), it requires another 8-12
to allow their currencies to appreciate until the US months of 4% to 5% nominal GDP growth before
economy registers consistent growth and shrinks the Bernanke and company could ponder over tampering of
output gap. the markets.
It would be painful for emerging countries to take a hit on Once the US comes out of the woods completely and the
their exports but another shock markets start discounting a
in the US economy carries reversal in interest rates in
every chance of ravaging the valuations, we would see a
world economy for a longer break in a strong correlation
The Question Is Not Just ‘When’ But
period of time. between the risk appetite and a
Also ‘How’ The Fed Attempts To
weak dollar. Until this devel-
Pull Back Quantitative Easing
The Fed would not mind opment takes place, any sharp
Programs And Goes For A Reversal
holding interest rates to near recovery in the greenback
In Interest Rates
zero level for an extended seems unlikely.
period of time and tolerate a
The Reversal In Inter-bank Lending
further slide in their currency However, the only mild respite
Rate Would Be Marked As One Of
for two reasons. could be in the form of year-
The Most Remarkable Economic
end profit-taking by the US
Events In The Coming Year
Firstly, it is to revive their funds in the emerging markets.
exports to provide steam to the At the moment, the dollar may
economic engine and secondly continue to slide southwards.
inflation is not an imminent
threat as is evident from the prevailing yields in the Even central banks tend to hold the same view as
treasury markets. estimates suggest they have put 63% of new cash into
Euros and Yen from April ’09.
THE FINAL WORDS
The dollar’s 37% new reserves fell from about a 63%
It would not be foolproof to assume an immediate average since 1999. It does not imply by any chance that
monetary tightening in the US only because assets have greenback’s status as a universal currency is under threat.
appreciated anywhere between 50% and 100%.
It is a matter of time when the Fed reverses the interest
With more than 15 million jobless and 25 million rate cycle and the dollar snaps back strongly. For the time
part-time working Americans, the Fed dare not lift the being, it is not in anybody’s interest as it would poten-
cover of expansionary policies. tially disarray the world dynamics.
According to Bill Gross, Managing Director of the So let the dollar keep juggling with risky assets and enjoy
world’s largest fixed income fund called Pacific Invest- the shoW.
14
Good Weather Best
Awareness about weather conditions and water supply requirements at various stages of a crop’s life cycle,
can help investors take smart decisions in agro commodities
T
he weather outlook for May-June looked quite edented downpour affected standing crops in the penin-
promising, which brought smiles on the faces sular region. Paddy, tur, urad, moong, maize, turmeric,
of farmers who spent more on sowing activity onion and soybean were the major crops that were
and thus tried to cover up the previous year’s affected due to heavy rains.
losses. But the monsoon turned out to be quite a damp-
ener. Many states witnessed long dry spells and heat Awareness about weather conditions and water supply
waves. This hit crop production a great deal. In Septem- requirements at various stages of a crop’s life cycle, can
ber ’09, India announced that it was facing a 50% deficit help investors take smart decisions in agro commodities.
in rainfall in key crop-producing states. Broadly speaking, there are two sowing seasons - kharif
and rabi. The weather requirements of commodities
The changes in the weather affected farmers the most as listed on Indian bourses have been mentioned below.
they were faced with a drought-like situation. Besides,
due to poor rainfall water levels in the reservoirs were KHARIF CROPS
down by 40%.
Kharif crops are highly dependent on monsoon and any
While on one hand, certain states were facing drought- variation in the same would have a direct impact on the
like situations, there were others, especially in peninsular overall production and productivity. The sowing season
and central India which witnessed heavy to very heavy for kharif crops is from April to July and the harvesting
rainfall in the month of October, the month when key season starts from October onwards. Weather conditions
harvesting of kharif crops is carried out. The unprec- for different kharif crops are:

15
Cotton in rainfall patterns adversely affects the crop. One has to
Cotton is a tropical crop and it thrives in a hot and humid also look at weather conditions in USA, Argentina,
climate. These conditions are generally found in places China and Brazil at the time of sowing and harvesting to
that are geographically close to the equator like North ascertain if it is favourable or not.
America, North Africa and Asia. The time to maturity for
this crop is around 5-6 months. It requires dry weather RABI CROPS
during harvesting for an exceedingly good yield. In
India, cotton is cultivated as a kharif crop. It requires Rabi crops are indirectly dependent on monsoon as they
21°C to 25°C during its growth phase to prosper. Cotton are more dependent on the moisture level in the soil. Any
requires a minimum of 50-60 cm rainfall. In addition to variation in monsoon would have a direct impact on the
this, it requires 6-8 irrigations. It is sown in the period moisture level of the soil and in turn it will affect the
between March and September and harvested between overall production as well as the productivity. The
August and October. sowing season for rabi crops is from October-December
and the harvesting season for these crops start from
Crude Palm Oil January onwards. Weather conditions required for rabi
Oil palm trees are generally grown in tropical climates. crops are as follows.
The plantation belongs to the riparian species, which can
survive in flood-like conditions and high water table. It Cardamom
can be cultivated in various types of soils but drainage The maturity time for this crop is fairly long. It takes
and water content in the soil supports the growth of the nearly two years to mature and requires good amount of
plant. The yield of this plant can get adversely affected if sunshine and adequate rainfall. A loamy soil with organic
it is sown in sandy or clayey soil. For optimum yield, a matter is suitable required for this crop. Moderate shade
rainfall of 80 inches or more per year is required and plays a key factor in the yield of the crop. In India, the
should be uniformly distributed throughout the year. In sowing period is from August to March and harvesting is
addition to this, the minimum temperature should be in done in the third year from the sowing year between
the range of 22-24% and the maximum temperature October and November.
should be within the range of 29°C-32°C with daily
sunshine exceeding five hours a day. Chilli
This crop is relatively much simple to cultivate. It can
Guar Seed survive in different soil and climatic conditions. But
Guar crop develops fully in a hot and humid climate. cultivators can get the best output of this crop when it is
This crop requires fertile and medium textured sandy grown in deep, loamy, fertile soil and is supplemented
soil. It requires an appropriate amount of rainfall for with appropriate moisture content. The maturity period
maximum yield. The maturity of this crop is relatively of this crop is 3 to 4 months. In India, chillies are
short as its growing period is 3-4 months. The long deep produced throughout the year. This crops is grown twice
taproot system enables the plant to absorb all water from – in both wet and dry season. During the dry season,
the soil making it an ultimate drought-resistant crop. At which is from March to August, the crop requires appro-
most places in India, guar is cultivated as a kharif crop. priate irrigation. The seeds are planted in April and
Sowing is usually done in the months of July and August harvested in August during this period. In the wet season,
as well as October and November. It requires three the crop is planted during the rains. The crop in planted
average rainfalls at the time of sowing. Any fluctuation during August and harvested in December and it reaches
in rain levels can adversely affect the yield of this crop. major markets in the months of February and March.
Signs of any delay in monsoon can also trigger an upside
in guar seed futures. Jeera (Cumin)
Jeera is a tropical plant. It grows well in sub-tropical
Soybean climates too. High humidity during flowering and fruit
Soybean is basically a summer crop. It needs a hot and set causes fungal diseases in this crop. Cumin can be
humid climate for cultivation. The maturity period for cultivated in all types of soils but well-drained, sandy
this plant is two months. When the seeds start maturing, loam and medium soils are suitable for this crop. Based
its leaves start falling and this period is considered ideal on the type of soil, the crop requires 4-6 irrigations. The
for harvesting this crop. In India, the crop is sown gener- first light irrigation should be done immediately after
ally in June. The soil temperature for this kharif crop sowing and the second irrigation should be done after
should be above 15.5°C and the day time temperature 6-10 days from the first irrigation. Subsequent irrigations
should be in the range of 26.5-30°C. In some states it is should be done after 30, 45, 65 and 80 days from the first
cultivated two times a year. The harvesting period for irrigation. Irrigation at the time of flowering and fruit set
this crop is between September and October. Any change are essential. At the maturity stage, irrigation should be
16
stopped. Generally cumin crop takes about 110 to 115 slightly differ from one variety to another at the time of
days to reach maturity. The crop becomes ready to germination. Wheat is grown in all types of climates that
harvest, when the plant turns yellowish brown. Harvest- is tropical, sub-tropical and temperate. In India, major
ing should be done early in the morning by either cutting wheat area is under sub-tropical region. The production
or uprooting the entire plant. The harvested crop should of wheat depends on when it is taking place. Like if
then be dried in the threshing yard and thrashed to timely sowing starts from early November, then there
separate the seeds. The separated seeds should be cleaned would be sowing of 100 kg/hectare. Wheat seeds are
by winnowing. usually sown through drilling or broadcasting though
hand sowing is also prevalent in some places. Drills
Mentha Oil attached to tractors or bullocks ensure that the seed is
The sowing of mentha oil starts in winter. This rabi crop deposited at a uniform depth.
prospers well in sandy soils with high water content.
Water logging and low rainfall prove to be hindrances to For timely sown and irrigated wheat, a row spacing of 15
the growth of this crop. Once the crop reaches the flower- to 22.5 cm is followed and 22.5 cm is considered to be
ing stage, it is harvested as the oil content in the plant is the maximum spacing. For late irrigated wheat, row
the highest during this period. spacing of 15-18 cm is the maximum. For wheat irriga-
tion, 4-6 irrigations are needed if wheat is grown under
Mustard Seed irrigated conditions. The first irrigation should be given
Mustard seed is basically a winter crop and requires low at the crown root initiation stage, 20-25 days after
temperature to prosper. In India, it is cultivated as a rabi sowing. Other rounds of irrigation should be done at the
crop. The sowing period for this crop is October- time of late tilling, late jointing, flowering, milk and
November. The crop starts flowering between dough stages. The wheat crop should be irrigated a few
December-February. The harvesting period is February- more times if the soil is very light or sandy. Depending
March. During rainy season, it requires the right amount on the availability of water, the schedule for irrigation
of rainfall and the crop also acts as a very good cover for can be worked out.
soil in winter. The crop is highly dependent on the
moisture level in the soil. Mustard seed normally Chana (Chickpea)
requires 3-4 irrigations. During the flowering stage, the Chana is a legume crop best suited to areas having low to
requisite temperature during day time should be 23°C to moderate rainfall and a mild weather. Excessive rains
25°C, whereas the night temperature should be in the after sowing or at the flowering period and hailstorms
range of 10°C to 15°C during the ripening stage are very harmful to the crop.
Severe cold and or frost can also be very detrimental to
Pepper the crop.
Pepper requires a hot and humid climate. It also needs a
good amount of rainfall and partial shade to prosper. Chana is not a winter-intensive crop and moderate
Pepper is grown as a mixed crop in India. The sowing rainfall of 60 to 90 cm per annum is considered optimum
period of pepper plant in India is generally May-June for its growth. Chana is grown in a wide range of soils in
which is harvested between December and February. The India but it grows best in sandy to clay loam soils. Chana
harvesting period varies widely depending upon the thrive under moist conditions with the day temperature
geographical location. In hilly areas, it starts from ranging between 21°C and 29°C and night temperature of
January to March, in plains the harvesting may start from 20°C. The yield is good in drier areas.
November to January.
Heavy rainfall affects the yield as it is more prone to
Turmeric diseases and excessive vegetative growth leads to
Turmeric requires a hot and humid climate to prosper. It lodging problems. Harvesting is done when the plant
generally grows in light black or red soils that are clayey becomes yellowish and the pods mature. They are not
in nature. After 7 to 10 months of plantation, the leaves well adapted to high moisture areas, saline soils, soils
of the plant start turning yellowish and harvesting is done which are slow to get warm in spring and waterlogged
during this period. The yield of this crop depends upon areas. It may be advantageous to avoid seeding chana in
the amount of rainfall it receives. It requires an appropri- low lying areas of the field, around slough or in areas of
ate amount of rainfall for its survival. high soil organic matter to prevent uneven or prolonged
maturity. Chana’s requirement of water is very minimal
Wheat as compared to other rabi crops and is fulfilled by the
Wheat grows in a cool environment. However, it requires midnight dew that gets accumulated on the plant.
different temperatures at different stages of its growth Chana’s irrigation requirement is the least among rabi
and development. The requirement of temperature may crops as it requires only 2-3 irrigationS.

17
O
f the various traditional economic indicators,
one that often goes unnoticed by investors is
the Baltic Dry Index (BDI). This index is an
indicator of the global demand and supply of
major raw materials used for production. Thus, it helps
gauge production and the world’s economic growth.
Despite its usefulness, this index is not widely recog-

nized among analysts. Some say it is a good economic
indicator, especially when looking for hints of economic
recovery, while others insist that leaning on this invest-
ment tool as a crystal ball to foresee the direction of the
global trade, is not the best idea.
THE BALTIC DRY INDEX

The Baltic Dry Index is a barometer of shipping costs of
dry bulk commodities including iron ore, coal and grain.
The Baltic Exchange, comprising 550 members is made
up of professionals from the international dry
The shipping industry, maritime lawyers and

B arbitrators, asks global shipping
ship altic Dr brokers for their pricing
p
and ing cos y Index i
every workday.
A Ba
can t s
prov s of dry an indi
rome e be b c
nefic ulk com ator of
ter
ial if m
used odities
Watc
judic
ious
hing
th l y
Wor
18
The Exchange calculates the Baltic Dry Index by
estimating the average time charter rate of four indices In addition to these predictive qualities of the Baltic Dry
that represent each vessel type. Each of these vessels Index, analysts think it is reliable because it provides real
make up 25% of the Baltic Dry Index. time updates. The information is current compared to
traditional economic indicators and the best part about it
Types Of Vessels is that it does not incorporate speculative elements
Vessel Type Deadweight Type Of Cargo mainly because of the absence of derivatives trading.
(tonnes)
Capesize 172,000+ Minerals Actions are limited to those involved in the contract - the
Panamax 74,000 Minerals, grains, sub-products
people with cargo and those who have the ship for the
Supramax 52,454 Grains, sub-products
Handysize 28,000 Grains, sub-products
cargo. Thus, the index can’t be manipulated as the
number of ship are fixed.
Source: The Baltic Exchange
The index is priced in US dollars. So, any major fluctua- Analysts who aren’t too convinced of its predictability
tion in the dollar index may significantly influence the consider the Baltic Dry Index as an indicator, but not
Baltic Index. necessarily the best. Firstly, the Baltic Dry Index can be
very volatile at times, simulating a roller coaster ride on
The Baltic Dry Index dates back to more than 250 years. the charts. The recession that began in 2007 illustrated
Its usage was first found in Virginia and Baltick Coffee these swings - hitting extreme highs and severe lows.
House at Threadneedle Street in London, according to
the Baltic Exchange. Merchants and ship captains who DEBACLE OF THE BALTIC DRY INDEX
frequented the shop in London negotiated terms for the Historically, the index has moved in the range of 2,000 to
shipment of cargo. 3,000 in 2001-03, but shifted its array to the levels of
3,000-6,000 between 2003 and 2006. The index
It wasn't until the year 1985 that the Baltic Exchange witnessed a strong run up from December ’06 and
established the Baltic Dry Index. The Baltic Dry Index touched an all time high of 11,793 in May ’08.
was calculated using voyage rates along more than two
dozen routes until July ’09. After making its high in May ’08, the BDI witnessed a
downside of more than 90% in 2008 and went on to the
The major factors that drive and drag the index are levels of 663 points in December ’08 on account of the
demand for commodities used in industrial production global financial crisis.
and fleet supply. If demand for commodities remains
strong, the BDI rates will increase irrespective of any
change in the commodities’ spot price. Baltic Dry Index
14000
Supply of ship is relatively inelastic as it takes more than 12000
two years to fulfill any new order. Any sudden increase 10000
in demand for commodities can lead to an appreciation in 8000
Baltic Dry Index
the BDI.
6000
Sometimes weather too plays a crucial role in determin- 4000
ing the demand for these commodities, which in turn, can 2000
influence the BDI. For instance, cold weather will 0
increase demand for coal and other energy-creating raw
2 Jan’04
4 Apr’04
6 Jul’04
7 Oct’04
8 Jan’05
11 Apr’05
13 Jul’05
14 Oct’05
15 Jan’06
18 Apr’06
20 Jul’06
21 Oct’06
22 Jan’07
25 Apr’07
27 Jul’07
28 Oct’07
29 Jan’08
1 May’08
2 Aug’08
3 Nov’08
4 Feb’09
8 May’09
9 Aug’09
10 Nov’09
materials. And for logistics, cold weather may cause ice

to block ports. Both these factors will lead to an increase
Source: NB Research, Bloomberg
in the BDI.
The decline in demand for manufactured goods,
It’s often assumed that when the Baltic Dry Index rises, slowdown in economic activity in the East Asian
the increase is indicative of a stronger demand for countries, sluggish imports by developing nations
commodities as producers are buying more raw materi- together contributed to the debacle of the Baltic Dry
als. When shipments increase, economies tend to do well. Index and sea-borne activities. Iron ore and coal account
The Baltic Dry Index that treads downward leads to the for 52% of the dry bulk trade. Panamax and Capesize are
thought that producers don’t believe that consumer mainly used to carry iron ore and coal, while Panamax
demand is high and the companies are slowing down carries grains as well. Handymax and Handysize are used
their production. to carry grains and sub-products.

19
Constituents Of Baltic Dry Index Capesize, Panamax Vis-A-Vis Coke Prices
20000 800
25000 14000
12000 16000
20000 600
10000
15000 12000
8000 400
10000 6000 8000
4000 200
5000 4000
2000
0 0 0 0
2 Jun’06
31 Aug’06
29 Nov’06
27 Feb’07
28 May’07
26 Aug’07
24 Nov’07
22 Feb’08
22 May’08
20 Aug’08
18 Nov’08
16 Feb’09
17 May’09
15 Aug’09
13 Nov’09
2 Jan’07
2 Mar’07
2 May’07
2 Jul’07
2 Sep’07
2 Nov’07
2 Jan’08
2 Mar’08
2 May’08
2 Jul’08
2 Sep’08
2 Nov’08
2 Jan’09
2 Mar’09
2 May’09
2 Jul’09
2 Sep’09
2 Nov’09
Capesize Panamax Handysize Baltic Dry Index
Panamax Capesize Coke Price
The decline in imports of China from Brazil and Austra-
lia due to slowdown in the economic activities adversely Baltic Dry Index Vis-A-Vis China’s Coal Imports
affected freight rates of large vessels. The Capesize
Chinese Coal Imports (Mn Tonnes)

8000 20
segment was the hardest hit due to low demand for dry
Baltic Dry Index

16
6000
commodities such as iron ore and coal. While the down-
12
side in Panamax index was limited as it got support from 4000
grains, the Capesize index witnessed a correction of 8
2000
almost 96%, while the downside in Panamax was limited 4
to 92%. 0 0
1 Aug’08
1 Oct’08
1 Dec’08
1 Feb’09
1 Apr’09
1 Jun’09
1 Aug’09
Share Of Commodities In Baltic Dry Index
Others - 36%
China’s Coal Imports Baltic Dry Index
Iron Ore - 27%
Steam Coal - 20%
Coking Coal - 7%
Robust Chinese steel production drove imports of iron
ore and coal which subsequently increased Chinese steel
Grains - 10%
exports. However, steel and iron ore, which were market
drivers of the BDI, plunged almost 49% on the back of
the global economic crisis. Australian coal prices
declined more than 50% due to the same reasons.
Baltic Dry Index Vis-A-Vis China’s Steel Exports

Source: NB Research, Bloomberg 8000000 15000
Steel Exports (tonnes)
A very strong correlation has been observed between 12000
Baltic Dry Index

6000000
iron ore import prices and the BDI (Capesize and 9000
Panamax). The BDI rose more than 100% from 2006 to 4000000
6000
2008 on the back of increase in demand for iron ore, 2000000
3000
broadly from China. The relationship for coke too
remained positive mainly on huge Chinese imports of 0 0
1 Aug’04
1 Apr’09
1 Dec’06
1 Oct’05
1 Feb’08
1 Sep’08
1 May’06
1 Mar’05
1 Jul’07
1Jan’04
coke and coal from 2007-08. The demand for coal

witnessed a revival in the second half of 2009 owing to
signs of an economic recovery. China’s Steel Exports Baltic Dry Index
Capesize, Panamax Vis-A-Vis China’s Iron Ore Imports Source: NB Research, Bloomberg
25000 1800
China’s iron ore imports
1600 The very reason why the Grain index is compared with
20000 1400
the Handysize Index and not the Baltic Dry Index is that
(‘000 tonnes)
1200
15000 1000 Capesize and Panamax vessels are main constituents of
800
10000
600 minerals and metals ore products, whereas Handysize
5000 400
200
and Handymax vessels are used to carry grains. There
0 0 exists a positive relationship between the Handysize
Index and the Grains index as seen in the chart. The rise
17 May’09
15 Aug’09
13 Nov’09
18 Nov’08
16 Feb’09
22 Feb’08
22 May’08
20 Aug’08
28 May’07
24 Nov’07
2 Jun’06
31 Aug’06
29 Nov’06
27 Feb’07
26 Aug’07
in the Handysize Index in 2009 was to a certain extent,

Capesize Panamax China’s Iron Ore Imports
attributed to the improvement in imports of soybean and
wheat by China and Middle East economies.
20
Handysize Vis-A-Vis Grains Index The Baltic Dry Index provides a glimpse of the global
4000 100 trade as it takes into account transportation activities of
80
major raw materials. It involves the assessment of
3000 shipping rates worldwide.
60
2000
40 The concept has been around since 1800s and has been
1000 20 continuously evolving. It has intrigued a number of
0
analysts with its predictability and other perks, such as
0
real time data and its inability to be manipulated in the
26 May’08
28 Mar’07
19 Aug’08
12 Nov’08
18 Oct’09
14 Sep’07
21 Jun’07
1 May’09
2 Mar’08
25 Jul’09
8 Dec’07
5 Feb’09
2 Jan’07
absence of derivatives and speculative elements.

Grains Index Handysize
Others think that the index is too volatile to be even
Source: NB Research, Bloomberg considered reliable and should therefore not be compared
LACK OF CREDIT AVAILABILITY with the stock market. Instead, the comparison would
prove more worthy if it is compared with commodities,
Any manner of trade is significantly influenced by the that is CRB Index.
availability of credit and the amount of liquidity in the
economy. Shipping activities need the Letter of Credit CRB Index Vis-A-Vis Baltic Dry Index
Break in corelation afterthe addition of
for payment because of the time gap involved between 14000
ship kept shipping rates low
500
12000
cargo delivery by the seller and the cargo receipt by the 10000
450
purchaser. It normally takes 25 to 45 days to complete 8000 400

one voyage with a parcel size ranging between 10,000 6000 350
tonnes and 3,00,000 tonnes. 4000
300
2000
0 250
The shipping activity relies heavily on the Letter of 2 Jan’04
1 Apr’04
30 Jun’04
28 Sep’04
27 Dec’04
27 Mar’05
25 Jun’05
23 Sep’05
22 Dec’05
22 Mar’06
20 Jun’06
18 Sep’06
17 Dec’06
17 Mar’07
15 Jun’07
13 Sep’07
12 Dec’07
11 Mar’08
9 Jun’08
7 Sep’08
6 Dec’08
6 Mar’09
4 Jun’09
2 Sep’09
Credit which is issued by the purchaser that the buyer’s
funds will be transferred to the seller on the completion
Baltic Dry Index CRB Index
of the transaction. Scarcity of credit around the world
indirectly impacted the number of shipping transactions
as banks were quite reluctant to issue a Letter of Credit to Ship In Service
shipping companies because of the rising number of 6350
default cases. Though these factors might not have a 6300
direct impact on the shipping activities, they definitely 6250
have an indirect impact as observed in the chart. 6200
6150
Baltic Dry Index Vis-A-Vis China’s M1 Money Supply 6100
15000 35 6050
30 Oct’09
13 Nov’09
27 Nov’09
15 May’09
29 May’09
12 Jun’09
26 Jun’09
10 Jul’09
24 Jul’09
7 Aug’09
21 Aug’09
18 Sep’09
2 Oct’09
16 Oct’09
4 Sep’09
1 May’09
6 Mar’09
20 Mar’09
3 Apr’09
17 Apr’09
12000 28
9000 21
6000 14
Although the Baltic Dry Index is a good indicator worth
3000 7
examining, it should not be used in isolation as a
0 0 complete economic indicator since various fundamentals
affecting the index need to be monitored simultaneously.
1 Jan’04
1 Sep’04
1 May’05
1 Jan’06
1 Sep’06
1 May’07
1 Jan’08
1 Sep’08
1 May’09
For instance, the rising commodity demand should be

China M1 Supply Baltic Dry Index analyzed along with the supply of vessels during that
particular period.
But of late, the increase in money supply in the system on We have already seen a very good correlation between
the back of low interest rates and various stimulus the CRB index and the BDI, but there has been a devia-
packages announced by major economies has infused tion in the indices from March ’09 onwards. The BDI
liquidity into the market. Interest rates of all major witnessed a slight downside in spite of rising imports and
economies are at an all time low. Such a development has exports around the globe since a number of ship hit the
revived the BDI, as it has appreciated more than 400% seas from March ’09 onwards, keeping shipping prices
since December ’08. under pressurE.

21
STRIKE WHILE IT IS HOT
The long-term outlook on the
complex still remains positive as
China’s strong will to become a developed
nation and its ambitious plans are likely to drive the
demand for industrial metals in the coming years
E
very time we talk about base metals, the first lows and buying support was not evident in any of them.
thing that comes to our mind is China. China has Abnormal time requires abnormal measures to come out
been the fastest growing economy in the world of it.
in almost three decades and is now the third
largest economy. Since the start of the year 2000, Interestingly, some base metals were even trading below
Chinese growth engines have gained steam and it seems their cost of production for a good amount of time. But
they are showing no signs of waning. This can be attrib- buying interest was not evident until the Chinese
uted to the government’s strong will. government stepped in to endow support in an effort
to stabilize industrial metal prices.
Due to the credit crisis and the financial meltdown that
hit the globe, the worst since the Great Depression of The Chinese State Reserve Bureau started buying base
1930, the prices of base metals saw a steep crash last metals for their strategic reserves, to make the most of
year. Most base metals were trading at their multi-year low prices and to support local miners and smelters. The
22
Chinese government has stocked more than 1.5% of the Karumba burst on 5th October, preventing the flow of the
global consumption of aluminium, copper and zinc. In material. This triggered a sharp upside in zinc futures
case of lead, it has stocked more than 5% of the global during October ’09.
consumption and more than 4% of the global consump-
tion in nickel. Nickel
This massive restocking activity has sucked out a huge In the last quarter of the year 2008, nickel prices were
surplus from the market. The government of China seen trading in the range of $1.5 - $2/kg, below the cost
flooded their markets with a stimulus package of $585 of production for a lot of miners in Australia. Finally,
billion to boost infrastructure spending and to push value buying emerged, which led to a sharp upside in
domestic consumption. Imports of base metals jumped nickel futures. But the markets corrected sharply after
sharply in the first three quarters of 2009, which touching Rs 1,000/kg as 45% of the total nickel demand
triggered a major upside in prices. comes from USA and Europe, where we have not seen
any major recovery in the demand for stainless steel.
Performance Of Base Metals Due to this, several mills remained closed. Nearly 65%
Base Metals 31 Dec ’08 5 Dec ’09 Percentage Return of the demand for nickel comes from the stainless steel
Copper 152.7 334 118.73% industry. There has been a positive growth in the demand
Zinc 54.35 109.55 101.56% for stainless steel in China. But since the last two
Lead 45.95 109.8 138.96% quarters, production has been growing at a rapid pace
Nickel 522.8 751.7 43.78%
Aluminium 70.8 99.45
leading to a slump in prices.
40.47%
Source: Reuters
Despite the strike at Vale’s Sudbury mine in the month of
Lead August, stocks piled up on the LME, indicating that the
demand for nickel remained weak. Aluminium has
Lead has been one the top performers in the base metal remained a laggard since the start of the year as stocks
complex, rising by nearly 140% as environmental issues continued to pile up in the LME warehouses and were
at Doe Run, the largest lead producer, as well as lead pegged at 4.5 million tonnes, which was 2.4 million
poisoning in China, have led to supply concerns, whereas tonnes at the start of the year.
the demand from batteries which constitutes 81% of the
total global demand for lead, has been robust as auto Asset allocation towards commodities has increased
sales in China and other emerging markets have been throughout the year owing to several reasons. Notable
growing rapidly. among them are various stimulus packages world over,
monetary and fiscal easing, credit spreads indicating
Copper good credit availability in global financial markets and a
weaker dollar resulting in dollar carry trade, that led to a
Copper, the king of base metals, rose by nearly 120%. rally in various risky asset classes, base metals being one
Robust demand from China and supply concerns at Chile of them.
can be attributed to this upside. However, investment
demand in copper has been robust post March ’09. After the massive stimulus package from the Chinese
government, the Manufacturing Index and industrial
Zinc production began moving up. Focus on domestic
consumption via spending on infrastructure was the
Nearly 47% of demand for zinc comes from galvanizing message being sent out by China as its exports have taken
of steel and Chinese production of steel has been robust a serious hit following the recession in USA and Europe,
since the start of the year. Production cuts and China’s which continued to be the top destination for exports.
aggressive buying have lent support to zinc prices in the
first two quarters. After China, we got confirmation that the recovery in
the OECD area has gained ground. The growth of
The accident that occurred in the world’s second largest GDP in Japan, Germany and France surprised many.
zinc mine, Century Zinc Mine, Australia led to a drop in
the production of zinc concentrate by two thirds to Leading indicators such as the Manufacturing Index and
around 10,000 tonnes. industrial production point toward a recovery in the
global economy. Going ahead, we expect the global
The 304-kilometre (190-mile) pipeline carrying wet industrial production to rebound further in the year to
concentrate from the mine to a storage shed in the Port of come which will drive prices of base metals up.

23
Global Industrial Production, 1989-2015 Development of ports is also picking up in China at a
(PPP and adjusted PPP weights) rapid pace as it remains their top priority because it has
% Weighted Total YoY IP Growth (adjusted PPP weights) three of the world’s top five business ports.
7.0 Weighted Total YoY IP Growth (PPP weights)
5.0
Airport expansion is also one of the areas where the
3.0
1.0
government intends to spend heavily.
-1.0
-2.0 Forecast The world’s largest population requires better water
-5.0 management. China requires waste management
-7.0 infrastructure to enhance efficiency of local municipali-
1988
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009E
2011E
2013E
2015E
ties. Due to shortage of water in northern China, the
country intends to invest heavily in this area over the next
Source: Reuters
10 years.
WHAT’S CHINA UP TO?
China’s power capacity is expected to exceed by 870
Builders of China's infrastructure have benefitted from GW in 2009 as compared to the US’s capacity of around
Beijing’s 4 trillion yuan ($586 billion) stimulus spending 980 GW and may reach 1,250 GW by 2015. Power has
package. China has massive expansion plans as far as been one of the major areas of concern for China. With
infrastructure projects are concerned. China’s hunger for robust economic growth, the demand for energy is likely
natural resources is evident from the fact that Chinese to outpace supply and government agencies are drafting
companies have been acquiring debt-ridden mining plans to spend heavily in this area. Wind power generat-
entities at reasonable prices during the downturn. Indus- ing capacity has surged at a rapid pace.
try and construction account for 49.2% of China’s GDP.
Policy planners are now warning of rigorous overcapac-
Around 8% of the total manufacturing output in the ity in the sector as more and more dams are being
world comes from China alone. It ranks third worldwide constructed on China’s rivers distorting the flow of water
in industrial output. With China stocking base metals and and thus posing a potential earthquake hazard.
showing hunger for natural resources, many would
wonder where the consumption is going to come from. China’s installed wind power capacity now is 12.17
Following are few of the plans China has envisioned million kilowatts, up from 3,50,000 kw in 2000. Large-
which might require metals and other commodities to scale solar energy facilities are also being planned.
boost its infrastructure. Interestingly, 54% of the demand for copper comes from
the power sector, which is most likely to increase in the
China’s 11th Five Year Plan includes extension of the near future.
country’s National Trunk Highway System from 41,000
km in 2005 to 65,000 km by 2010. By 2020, China’s renewable energy should account for
15% of the national primary energy consumption,
The Chinese Transportation Ministry is expected to supplying the equivalent of 600 million tonnes of coal.
spend more than $1 trillion for highway construction.
China is focusing on three areas. a) the toll road network Infrastructure spending in the oil and gas sector in China
in China East, b) the main highway in China Central and has remained robust with a rapid rise in demand in a
c) construction of inter-county roads in rural areas across decade. In 1997, China’s refining capacity was around
the country. The government plans to complete a total of 4.5 million barrels per day which has shot up to around
80,000 km toll road nationwide which is likely to connect 7.9 million barrels per day in 2008 and may touch 8.5
319 cities with population of more than 2,00,000 each. million barrels per day by 2011.
The Ministry of Railways is considering of expanding The demand for various base metals in China is expected
the present network from 78,000 km to 1,20,000 km by to remain robust and any major disruption in supply is
2020. It is also considering of investing in 800 speed likely to spark a sharp upside in prices of base metals.
trains over a span of three years. China is also focusing China will require metals and other commodities to
on constructing a metro rail network as tier-II cities are fulfill their plans.
seeking approval to start more such projects.
We wonder what would happen to the prices of base
Between 2006 and 2010, $200 billion is expected to be metals if other developing countries start formulating
invested in railways alone, four times more than the past aggressive plans like China and become as hungry for
five years. natural resources as the Chinese?
24
Before the earning,
comes the learning.
&
Present
The new-age
equity camp
DATE : 19th December, 2009

VENUE: Banquets, The Park,
17 Park Street, Kolkata
Registration fee: Rs. 300/-*
RSVP: Mr. Ranjan Shrivastava; Tel: +91 98313 01575 / 1800 103 6311 (Toll free)
To register, e-mail us at: smg.minaz@gmail.com or SMS NB <name> to 59995
* includes lunch
Zinc Stocks On LME And Prices IN A NUTSHELL
The drop in copper imports, rising output in China for
900000 5000
4500
most base metals and a surge in inventories on the
800000
700000 4000 London Metal Exchange and the Shanghai Commodity
600000 3500 Exchange indicate that before base metals take the next
3000
500000
2500 leap, a correction of 5% - 8% cannot be ruled out as it
400000
2000 seems that the markets have discounted a lot of positive
300000
200000
1500
1000
news in advance.
100000 500
0 0 The slight reversal in the dollar that occurred recently
Jan-04
Aug-04
Mar-05
Oct-05
May-06
Dec-06
Jul-07
Feb-08
Sep-08
Apr-09
Nov-09
may cause some long liquidation as markets remained
overbought in base metals. We do not remain very
LME Stocks LME 3M Prices bearish on the complex as demand from China and other
Source: Reuters emerging markets are likely to drive up the prices of
Lead Stocks On LME And Prices industrial metals.
160000 4500
Despite record inventories, aluminium looks strong for
140000 4000
120000 3500 the first quarter of 2010 as rising costs of producing
100000
3000 aluminium and index rebalancing can really help prices
80000
2500 as it has been a laggard since the start of 2009.
2000
60000
1500
40000 1000 The long-term outlook on the complex still remains
20000 500 positive as China’s strong will to become a developed
0 0 nation and its ambitious plans are likely to drive the
Jan-04
Aug-04
Mar-05
Oct-05
May-06
Dec-06
Jul-07
Feb-08
Sep-08
Apr-09
Nov-09
demand for industrial metals in the coming years. Other

developing nations are yet to show the same kind of will.
LME Stocks LME 3M Prices
If they do so, the prices of base metals can take a big leap
Source: Reuters
from the present levelS.
Surendra M. Mardia
President of Bombay Metal Exchange Ltd spoke to Beyond
Market on issues pertaining to the promotion of trade and
industry in non-ferrous metals.
Q. Tell us about the Bombay Metal Exchange Ltd prior to that I was the Vice-President.
(BME) and your association with it.
Q. What services are offered by the Association to its
The Bombay Metal Exchange (BME) is over 50 years members?
old. It was established in 1948 to represent the interests of
the trade and industry growth in the non-ferrous metals We take industry matters with local and central govern-
segment. I have been associated with the BME since ment bodies. We provide our members with circulars,
1978 as the director. For the last two years, I have been updating them about the latest trends. Our main aim is to
the president of the Association. Before that I served as protect the non-ferrous metal industry, which has seen
senior Vice-President for three years and for three years many ups and downs in the past that have caused even big
28
industries to collapse due to the non availability of data or say in price determination internationally. But India can
experience. For example, copper prices rose from Rs 4 dictate terms in case of gold as it is the largest buyer of
per kg to Rs 400 per kg within a span of 40 years. But no the yellow metal.
one had expected this as they had failed to follow trends.
Q. Should India take lessons from China’s aggressive
We therefore try to inform and educate our members and buying of metals?
also turn towards the MCX for hedging to cover against
the risk of rising prices. We provide these services to over I feel India should have stocked metals when it had
500 members, including reputed ones from the industry reached its low because if India needs to grow then it
and government agencies all over India. requires these metals. But our politicians are concerned
more about catering to their own interests.
Q. Although you mentioned about hedging, we don’t
have a delivery mechanism in place. What is your take China on the other hand is selling some commodities
on this? even below the manufacturing cost because it wants to
capture the global market and dictate terms. And once it
Hedging is a good idea as it will facilitate the trade and captures the global market, it can jeopardise small indus-
industry. Mostly the industry will benefit from this tries of the world.
delivery-based mechanism as they will be assured of
procuring the raw material on time and at the rate they Q. But there is a delivery mechanism on the Shanghai
had planned for. Exchange. Comment.
Delivery-based mechanism has not been put in place Everything which is transparent and easy to operate will
because of government regulations and taxation always be welcomed by the industry.
problems as well as problems arising out of disparity in
duty rates and taxes in different states. Q. Do you personally feel Chinese imports and
demand will remain robust for base metals in the next
Also there is no mechanism to locate the buyer and seller quarter?
and to understand where he hails from. Besides, the time
frame required for such procedures is not known as It is very unpredictable. We don’t know what’s in
metals have to cross state borders and octroi limits. But China’s mind. The prices are already $7000+ per tonne. I
now the government has announced the imposition of do expect a jump and this jump will depend on the trade
GST from April’10, making the tax system uniform all deficit or meeting their export target. But due to the
over the country. sluggish demand in the US and Europe, Chinese exports
may not grow that fast. So I expect the Chinese market to
This will solve part of the problem. SEZs are coming up be stable for the next six months.
now which will enable buyers to keep the material
without import duty. And the warehouses can be Q. We have seen a rise in gold prices and the demand
centrally located, thereby reducing transportation costs. in India has evaporated. What do you think will be its
effect on the demand for base metals?
Q. What will India’s role be in price determination of
base metals? Do you see India having any say in Domestic demand has been normal despite global
driving prices? slowdown, barring a few export-oriented industries. And
with the growth rate expected in the next few years, I feel
It’s very difficult to say so because India is not a large that non-ferrous metals, especially copper and zinc will
producer. There are no large reserves of copper and other have a robust demand in India.
metals, although we have a sufficient amount of zinc and
surplus aluminium. Copper is an essential metal because it is used in
infrastructure development, in electronic appliances,
To register economic growth, we will have to depend on motors, transformers, etc. No house can be built without
imports to satisfy our need for metals. But there are copper. No nation can progress without copper.
exceptions like China which is a major consumer, yet it
can dictate terms using its money power. Unfortunately, our politicians failed to act when the price
of copper was as low as $2,700 a tonne and had not
If India progresses in that manner, we can have a major crossed the $3,500 mark for nearly 4 to 6 months.

29
Q. How much do you think will the weakness in dollar in the price of this metal. And simultaneously, because of
impact prices of metals? high prices of nickel, alternatives were developed.
There is a weakness in dollar and the confidence is low as Nickel was used mainly for producing stainless steel.
people fear that the US currency may collapse any time. Chrome was used for producing steel. And chrome was
And it will be China which will play a major role as it has also used in the production of stainless steel abroad. And
huge dollar reserves. Besides, the focus is shifting to today nickel is not used much in the production of
other currencies, gold, copper and other commodities. stainless steel. Small quantities of nickel are used for
plating.
Q. Lead has been the best performer since the start of
the year and is giving 110% returns. What do you Aluminium prices are at an all time high even though the
think of lead and other metals? stocks and reserves are high. This shows that there is a
huge demand for the metal globally. India has the largest
I don’t feel that the demand for lead will decrease as most deposits of bauxite, but the problem is shortage of power.
car batteries still need more than 50% lead. And the So we are not able to convert our raw material into
automobile industry is seeing a growth. But I feel this aluminium.
metal may not see a slowdown for 2 to 3 years. Lead was
a favoured commodity till some time back and it had Sometimes we send the ore out of the country and convert
touched a high of $4,700 a tonne. it into alumina which is then brought into India and
converted into aluminium. But once India is self-
Today the prices are in the range of $2,200 - $2,300. sufficient in power, these processes can take place in the
Also, it has to be noted that in the mines, lead is always country itself. And we can be a large or probably the
found with zinc in small quantities. So, if we don’t see the largest exporter of aluminium. Prices are likely to remain
consumption of zinc, the production of lead will also fall stable.
and then we may see a rise in the prices of lead.
Q. Which base metal has a huge potential and should
Nickel in India is completely imported. Once it was a be watched out for?
favoured metal and the prices touched $54,000/kg. But
then it started falling gradually to $7,500 which was even Watch out for copper. I think investing in copper has
below the cost of production, because people kept invest- always been beneficiaL.
ing in this metal and hoarding it in anticipation of a surge
Possibilities Beyond Imagination
SMS ‘BANG’ to 54646 Contact at: 022-30272323, e-mail: contact@nirmalbang.com

30
Land of Opportunities Agricultural commodities, as an asset class,
can boost your portfolio with handsome returns
D
uring an interview with a leading business commodity prices, then it will become easy to take
daily, global investor Jim Rogers was asked investment decisions.
what advice he would give to a confused fund
manager. To this he had said, “Become a In India agro commodities are classified into various
farmer.” What a profound statement! complexes as far as futures trading is concerned.
Guar Complex: Guar seed and guar gum
Rising population, stagnant or drop in acreages, weather Oilseed Complex: Soybean, soyoil, mustard seed,
uncertainties due to global warming, phenomena like El cotton, cotton seed oil cake, castor seed
Nino and La Nino, drop in water in reservoirs and chang- Spices Complex: Pepper, jeera, chilli, cardamom,
ing food habits in developing countries indicate that mentha oil, turmeric
agricultural commodities are in a secular bull run, which Pulses Complex: Chana
is likely to continue. Grains Complex: Wheat
More interestingly one can see that carry forward stocks Traders and investors should monitor weather carefully
of most agro commodities are declining rapidly and the as it is an important factor while trading in commodities.
demand is rising gradually. ‘Agro commodities’ is full of Even a slight change in weather at the time of harvesting
opportunities. If one understands the demand and supply and sowing can have a great impact on the prices of the
dynamics, seasonality and other factors affecting agro commodities.

31
The Australian Meteorological Bureau and NASA had For example if jeera prices are moving up and there are
cautioned about the setting in of an El Nino event during no major triggers coming from the spot market, traders
April-May this year. The mild occurrence of this attribute this rise to speculative trade. But they might not
phenomenon delayed monsoon in India and there has be aware of the export status. They may not know
been a deficit of 15% to 20% in rainfall in this country. whether exports have picked up in a country or whether
Prices of pulses, vegetables, spices and oilseeds, have other nations like Turkey and Syria have increased their
therefore, started moving up. prices or whether the weather has been unfavorable at the
time of sowing or harvesting in other regions.
Weather changes the dynamics of agro commodities very
quickly. During monsoon, volatility in agro commodities Despite slack exports, guar gum prices were moving up
is the highest. By understanding the impact of weather and one can say that they were not in line with fundamen-
conditions on particular commodities, traders can take tals. But they may not be aware of the fact that due to
early advantage. below normal monsoon, the production was likely to go
down by 60% -65%.
Myths And Opportunities
The beauty of the futures market is that it moves quite
Interestingly, in 2009, monsoon was delayed in India. It ahead of fundamentals. Just because someone is taking
was also below average, triggering a sharp upside in benefit of this kind of news or development, prices move
prices of most agricultural commodities. Prices of milk, up and after the rise in prices, there is a reason to do so.
vegetables, sugar, rice as well as commodities listed on
the exchanges started moving up sharply. There is more than one evidence to suggest that even
after suspending commodities from trading on futures
There’s a misconception that due to futures trading, platform, prices have continued to move up. Sugar is one
prices are rising at a rapid pace and speculation is driving of the best examples. Suspending sugar trades did not
commodity prices higher. Although the futures market is help much. Prices continued its upward march. If there is
subject to speculation, the speculators provide depth for acute demand and supply mismatch, prices are bound to
actual hedgers. Interestingly, fundamentals are move up. If monsoon is below normal, prices of agricul-
discounted well in advance in the futures market, which tural commodities are again set to move up.
is taken up as speculation most of the times.
Opportunities In Agro Commodities

Just when you were wondering what returns should investors or traders expect from agro commodities, here’s a low down.
Turmeric Prices
15000
Turmeric, the golden spice, has given investors many reasons
265% Upside in a year to smile. The bull run in turmeric began in November ’07 after
13000 prices remained low for a very long time. The situation was the
11000 same even in 2008 when production was down and there was
9000 no slowdown in exports over the past 4 - 5 years. Due to robust
exports, turmeric carry forward stocks declined sharply.
7000
5000 Exports were pegged at 10 lakh bags - 12 lakh bags whereas
3000 production was down by 10% - 15% pegged at 40 lakh bags -
42 lakh bags whereas demand was 50 lakh bags - 53 lakh bags.
1 Jan’09
1 Feb’09
1 Mar’09
1 Apr’09
1 May’09
1 Jun’09
1 Jul’09
1 Aug’09
1 Sept’09
1 Oct’09
1 Nov’09
1 Dec’09
The bull run intensified after unseasonal rains in the month of

October ’09 damaged 1 lakh bags - 1.5 lakh bags of turmeric in
Andhra Pradesh.
Source: Reuters, NB Research
The ending stock fell to 3 lakh bags - 3.5 lakh bags from 10 lakh bags - 12 lakh bags a year earlier. Prices rose by more
than 275% in the last 11 months. Going forward, we expect production of turmeric to rise to 50 lakh bags - 52 lakh
bags which can trigger a sharp correction in the yellow spice from the present levels. The tide seems to be turning in
turmeric and the outlook remains bearish. The December contract may test the levels of Rs 8,000/quintal.
32
Jeera
17000 Jeera prices rose sharply from 15th Sept ’09 as Free On
16000 Board (FOB) prices in Turkey and Syria increased to
15000
Upside of 60% $3,100/quintal - $3,000/quintal from $2,650/quintal -
14000 $2600/quintal. Jeera prices rose by more than 60% in the
13000 last six months. Indian exports also jumped high by 6,000
12000 tonnes and 5,500 tonnes in September and October respec-
11000 tively, pushing prices higher on the domestic bourses.
10000 Warm weather in jeera-producing regions of India has
25 Sep’09
30 Sep’09
05 Oct-09
10 Oct’09
15 Oct’09
20 Oct’09
25 Oct’09
30 Oct’09
04 Nov’09
09 Nov’09
14 Nov’09
19 Nov’09
24 Nov’09
29 Nov’09
raised concerns of a drop in the output by 10% to 12% next
10 Sep’09
15 Sep’09
20 Sep’09
year that has also fuelled a rally. But going forward, we feel
that the huge difference between the spot and futures prices
of nearly Rs 1,400/quintal may cap the upside. It is likely that
the prices may not sustain above the level of Rs 17,000/quintal and may touch the levels of Rs 14,400/quintal to
14,000/quintal on the downside.
Pepper
Pepper, the king of spices, has remained relatively subdued
17500
since the start of the year. Fundamentally, pepper looks the
16500
Upside of 30%
strongest among the entire spices complex. The global
15500 pepper carry forward stock is seen declining from 85,000
14500 tonnes to 64,000 tonnes and more so that of Vietnam’s,
13500 which was around 20,000 tonnes to 22,000 tonnes last
12500
November and is expected to remain around 10,000 tonnes
and 11,000 tonnes due to good exports by Vietnam. Though
11500
Indian exports declined due to shortage of MG1 grade of
18 Aug’09
29 Sep’09
8 Sep’09
20 Oct’09
10 Nov’09
1 Dec’09
16 Jun’09
5 May’09
26 May’09
28 Jul’09
7 Jul’09
pepper, the low stocks in the domestic markets kept the

prices high. So far pepper prices have risen by more than
Source: Reuters, NB Research 30%. The prices of all the spices like cardamom, nutmeg and
dry ginger, including pepper that are cultivated in Kerala, have risen sharply. This proved beneficial for farmers. If they
hold their produce for a slightly longer period than they normally do, it would benefit them even more. We feel any
delay in harvesting the Indian pepper, the prices of this crop may touch the levels of Rs 17,000/quintal to Rs
17,500/quintal.
Soya Reﬁned Oil

The recent surge in the soyoil complex has been mainly due
520
Upside of 25% in a month
to weather issues across the globe - from dry weather condi-
500 tions in Argentina to heavy to very heavy rains in Madhya
480 Pradesh and Maharashtra during September-October
causing damage to the crops. The overall soybean produc-
460
tion was estimated at 8 million tonnes - 8.5 million tonnes
440 as compared to previous estimates of 9 million tonnes - 9.5
420 million tonnes. The drop in the US ending stocks of
soybean and soyoil was also seen supporting prices despite
400
a bumper crop in the US. Prices rose sharply in the interna-
30 Nov’09
9 Nov’09
16 Nov’09
23 Nov’09
19 Oct’09
26 Oct’09
2 Nov’09
14 Sep’09
21 Sep’09
28 Sep’09
5 Oct’09
12 Oct’09
tional market due to robust imports by China and a weak-

ness in the dollar. Soybean prices climbed by 25% in just
Source: Reuters, NB Research one month.

33
Guar seed Guar gum
2900 7000
2700 6500
65% upside since May ’09 6000
2500 65% upside since May ’09
5500
2300
5000
2100
4500
1900
4000
1700
3500
1500 3000
25 May’09
25 Jun’09
25 Jul’09
25 Aug’09
25 Sept’09
25 Oct’09
25 Nov’09
2 May’09
2 Jun’09
2 Jul’09
2 Aug’09
2 Oct’09
2 Sept’09
2 Nov’09
2 Dec’09
Source: Reuters, NB Research Source: Reuters, NB Research
Guar seed and guar gum are among the top performers in agro commodities. The bull run in these commodities started
after it became clear that the monsoon would be delayed in northern Rajasthan, the major guar seed producing region
and a drought-like situation would develop in other states, due to the development of the El Nino in the eastern Pacific
Ocean. Despite slack in exports, prices of guar gum started moving up since traders were expecting production to
move down. Hence prices started soaring. Production of guar seed in the year 2008 was around 72 lakh quintals - 78
lakh quintals. Due to attractive prices of cotton and other pulses, farmers took to sowing these crops affecting guar
seed crop. With a sluggish monsoon around August ’09, it was clear that prices of guar seed were likely to take off
sharply from its present levels. This year, the guar seed production is expected to decline to 25 lakh quintal - 28 lakh
quintal and prices are gradually moving up in line with fundamentals. In the past seven months, we have seen an
upside of more than 65% in guar seed and guar gum futures and counting. Once the pressure of arrivals in spot markets
moderates, then we may see a further advance in this complex. Guar seed prices may witness some correction in the
coming months as exports of guar gum remain slack .
Chana
Chana appreciated comparatively lower than other pulses.
2700
2600
Continuous attempts to curb rising prices through imposi-
2500
25% upside in two months tion of stock limits in various states and also due to state
2400 elections, the prices remained under pressure but demand
2300 and supply dynamics of commodities have worked well for
2200 chana futures. We saw an appreciation of more than 25% in
2100 chana prices in just two months. Sowing of chana in Rajast-
14 Oct’09
21 Oct’09
28 Oct’09
05 Oct’09
12 Oct’09
19 Oct’09
26 Oct’09
02 Oct’09
09 Oct’09
16 Oct’09
23 Oct’09
30 Oct’09
han has been only 60% - 70% as compared to last year on

the back of bad weather conditions, whereas sowing of
kabuli chana in Madhya Pradesh has risen this year. In
Source: Reuters, NB Research Madhya Pradesh, sowing is estimated to be around 80% in
the current year as compared to last year. Recent reports of damage to standing crops from disease might further affect
chana output. The outlook for chana still remains bullish. We expect prices to touch the levels of Rs 2,800/quintal -
Rs 2,900/quintal.
Internationally, money managers have been actively diversifying their commodity portfolio in wheat, corn, sugar and
soybean. Going forward, we feel participation in agro commodities in India will move up. Agricultural commodities,
as an asset class can boost your portfolio with handsome returns and it’s a land of opportunities which is still
unexplored by many investorS.
34
Mr Ramesh Karania, Spice Merchant and owner of Indian Spices
Q. Tell us about your company, Indian Spices. Q. How is the domestic demand for pepper? Do
futures impact the prices of pepper?
Indian Spices has been trading spices since 1979. We
mainly deal in dry ginger and black pepper. Domestic demand has been stable. Futures trading is
having an impact on the prices of pepper. If the futures
Q. We have noticed that pepper futures are moving contract moves up, then a sudden spurt in demand is
up sharply since the last two months. What do you witnessed even in the domestic market. Traders are
expect from this spice? closely eyeing movements in the futures market.
Indian pepper production is estimated to be around Q. The recent spurt in the prices of all spices ranging
45,000 tonnes, whereas domestic demand is around from cloves to nutmeg, mace, cardamom was funda-
45,000 to 50,000 tonnes. In this case, if exports demand mentally driven. Where do you think pepper is placed
is robust, then prices can touch the levels of Rs 22,500 to among them?
Rs 25,000 a quintal. In the short run, prices can fluctuate
by Rs 500 in either direction. But in the long run, the Yes, the rise in prices was fundamentally driven and not
outlook for pepper looks bright. by speculation. Pepper looks very strong as farmers are
not expected to bring the produce to the market as they
Q. Does futures trading help you in hedging your have earned good profits in other commodities like
stocks and how beneficial it is to traders? coffee. So they may not sell pepper immediately.
Yes. We are hedging our positions. Not by giving The long-term outlook is as bright as Vietnam, the
delivery but by selling pepper futures if we find them at world’s largest producer, is expected to cut production.
attractive levels. We also seize arbitrage opportunities. And the carry-forward stock has declined globally. So we
Recently pepper futures market moved sharply vis-à-vis feel that pepper futures may touch Rs 22,500 - Rs 25,000
the spot market. This gave us an arbitrage opportunity of a quintal next year.
2% per month, excluding all expenses.
OUTLOOK FOR BLACK PEPPER LOOKS POSITIVE FOR THE COMING QUARTER
The spices complex has remained vibrant since the start of the year. We have seen a bull run in the spices complex throughout
the year. Prices of cumin (jeera), turmeric, nutmeg, mace, dry ginger, cassia, star aniseed, cloves, cardamom and mentha oil have
moved up. Black pepper has been an under performer. Despite the drop in domestic production, carry forward stock prices were
under pressure and an upside was capped. Imports of pepper in India moved up during 2009 due to depleting inventory in domes-
tic pepper mart. The shortage of MG1 grade of pepper has hit exports greatly. Indonesia’s selling pressure is one of the reasons
why the market was not able to move up sharply. But we expect this pressure to remain moderate in the coming months.
The carry forward stock of pepper in Vietnam, the world’s largest producer and exporter of black pepper, is expected to go down
from last year’s 20,000-22,000 tonnes to 7,000-8,000 tonnes due to robust exports. The Indian pepper’s carry forward stocks too
have been declining since the last three years. Global pepper carry forward stocks are expected to decline from 94,000-90,000
tonnes to 65,000-68,000 tonnes. Arrival of pepper in the Indian markets has been delayed in the month of December since the
last two years and domestic demand tends to remain robust from January to March. Any delay in arrivals tends to push prices
higher. New arrival of Vietnam pepper starts from the end of March. We expect Vietnam pepper production to drop by 5,000-
8000 tonnes due to erratic weather conditions. Overall the outlook on pepper remains bullish for the first quarter of 2010 as drop
in global carry forward stocks, expectation of drop in production in Vietnam and robust domestic demand in the first quarter, may
spark a bull run in pepper.
Black pepper, the king of spices, looks very strong from a three-month perspective. We may see an upside of 15% in spices in
the next three months as fundamentals are very stronG.

35
A Silver Lining
Silver, the poor cousin of the yellow metal, looks ready to hog the limelight in the coming months
English: Silver; French: Argent; order to raise cash to cover losses elsewhere. The main
German: Silber; Italian: Argento; reasons attributed to this phenomenon are – lesser
Latin: Argentum; Spanish: Plate. monetary value of silver as compared to gold, its market
being less liquid and poor outlook for demand from
I
f the characteristics of this white metal are to be industrial consumers.
defined in one word, then the befitting word would
be ‘versatile’. Silver has served mankind in It can be observed that silver prices fell by 56% from the
multiple forms. Notable among them are currency, high of $20.75 in early March ’08 as compared to 29%
jewellery, silverware, dentististry, photography and decline in the yellow metal. This development confirms
electronics, mirrors and optics as well as medicine. the higher vulnerability of silver to financial and
economical shocks as compared to gold.
The dual personality - monetary value and industrial
value - makes this metal very valuable. Silver occurs
naturally in its pure and free form (native silver), as an 1400 25
1200
alloy with gold and other metals; in minerals it occurs in 20
1000
forms such as argentite and chlorargyrite. A major chunk 800
Gold Price
of silver is produced as a by- product of copper, gold, 600

15
lead and zinc refining. 400 10

200
0 5
Applications Of Silver
2 May'07
2 Mar'08
2 Jan'09
2 Nov'09
2 Nov'04
2 Sep'05
2 Jul'06
2 Jan'04
Industrial Application - 54%

Photography - 12.5% Gold ($ per oz) Silver ($ per oz)
Jewellery - 19% Source: Reuters, NB Research

Silverware - 6.8%
In terms of recovery in silver, it usually underperforms
Coins And Medals - 7.7%
gold at the beginning of an up-leg and outperforms as the
economy starts gaining ground. This is essentially what
we have seen in the first few months of 2009, with silver
generally responding with a lag to renewed up-leg in
gold prices. But as we started witnessing more green
shoots in economic numbers, the white metal outpaced
gold then onwards.
It has risen by over 100% since November ’09 as

compared to a 68% jump in gold in the same period. The
Source: GFMS, NB Research conclusion is that silver’s volatile nature and high
A SNAPSHOT involvement of speculators in the market generally
results in greater net investment as well as disinvestment
Silver has been on a roller coaster ride since the onset of than in gold and, therefore, larger price swings in the
the financial crisis in 2008. The ride has been bumpier as white metal than the yellow metal.
the downfall in silver was more severe as compared to
gold. It is believed that silver is more vulnerable to finan- THE ROAD AHEAD
cial and economical shocks. It is also said that silver
gives way first to investors dumping of various assets in Going forward, we firmly believe that a good amount of
36
steam is left in the ongoing rally in silver and it would be easily countered as digital cameras contain many
continue to outperform gold in returns. We put forward silver components which can compensate for the falling
our arguments henceforth. silver utilization in photographic development.
Mine Production
Silver Prices As A Function Of Prices Of Other
700 5%
Industrial Metals
3.93%
3.57% 4%
160 650
3%
In million oz
2.75%
140
2.51% 2%
600
120
1%
100 0.66%
550 0%
80 2003 2004 2005 2006 2007 2008
60 Mine Porduction Mine Porduction(% change)
40 Source: GFMS, NB Research

20
GFMS, a leading precious metals consultant, sees mine
0 production falling slightly in 2009, with output expected
to decline from all by-products’ sectors except gold, as
02 Feb’09
02 Oct’09
02 Dec’09
02 Ja’08
02 Feb’08
02 Mar’08
02 Apr’08
02 May’08
02 Jun’08
02 Jul’08
02 Aug’08
02 Sept’08
02 Oct’08
02 Nov’08
02 Dec’08
02 Mar’09
02 Apr’09
02 May’09
02 Jun’09
02 Jul’09
02 Aug’09
02 Sept’09
02 Nov’09
02 Jan’09
miners have cutback their output this year. It warns,

Copper Zinc Nickel Lead Aluminum Silver however, that silver supply and demand fundamentals
will turn negative, with a substantial surplus.
The price of silver is not only a function of its primary Overall, it sees supply set to decline by around 2% this
output but more a function of the price of other metals year. On the other hand, fabrication demand is expected
also, as silver world mine production is more a function to decline by about 8% to 10% this year. However, it is
of the prices of other metals. not hard to believe that the huge accumulation by institu-
tional investors can easily fill this gap.
Primary mines produce about 30% of the world’s silver,
while about 70% comes as a by- product of gold, copper, Net Speculative Positions On COMEX
lead and zinc mining. Considering the phenomenal
60000 21
Contracts of 5000 troy oz
recovery in prices of industrial metals across the globe,

50000
backed by a bounce in manufacturing activities, silver 18
40000
prices may not look back in the near future.
$ per oz
30000 15
20000
Silver Scrap Supply 10000
12
0 9
190 2.00%
8 May'09
8 Jul'09
8 Sep'09
8 Nov'09
8 May'08
8 Jul'08
8 Sep'08
8 Nov'08
8 Jan'09
8 Mar'09
8 Jan'08
8 Mar'08
1.25%
1.00%
185 1.08%
-0.16% 0.00% Non- commercial net positions Silver price
180 -1.00%
-2.00% Source: CFTC, Reuters, NB Research
175 -2.91%
-3.00%
-3.24% A study of net speculative positions reveal that there is a
170 -4.00%
2003 2004 2005 2006 2007 2008 consistent build in speculative position after the
disinvestment process, unfolded by the crisis, came to an
Old Silver Scrap Old Silver Scrap(% change)
end. It can be inferred that speculators have been a major
Source: GFMS, NB Research driving force in the ongoing rally in silver prices.
Scrap supply of silver is declining consistently since Another important development in the silver derivatives
2006 and is expected to remain under pressure in the segment can be observed in gross position of four or less
future. First, higher price expectations are limiting the largest traders reported in Commodity Futures Trading
supply of scrap in the market. Second, a major chunk of Commission Report.
silver supply is consumed for photographic development
which can not be reclaimed. It is argued that digital Four or less traders hold about 50% of short positions in
camera is replacing photographic development, eventu- the silver derivatives market. We have witnessed a large
ally leading to huge surplus in supply. This argument can de-hedging in gold positions by gold miners, which

37
pushed gold prices higher. Anything of this sort in silver Silver As An Important Industrial Metal
can provide further leg to the ongoing rally in silver.
60 25
Maintaining Its Status Quo As A Safe Haven Asset 50 20
110 40
250 15
30
200 100 10
20
150 90 5
10
100 80 0 0
1 Dec'08
1 Oct'09
1 Oct'07
1 Dec'07
1 Feb'08
1 Apr'08
1 Jun'08
1 Aug'08
1 Oct'08
1 Feb'09
1 Apr'09
1 Jun'09
1 Aug'09
50 70
3 Apr'08
3 Oct'08
3 Jan'09
3 Apr'09
3 Jul'09
3 Oct'09
3 Jul'08
3 Apr'07
3 Oct'07
3 Jan'08
3 Jan'06
3 Apr'06
3 Jul'06
3 Oct'06
3 Jan'07
3 Jul'07
ISM manufacturing Silver price ($ per oz)

Gold Silver Dollar
Nearly 50% of silver supplied in the market goes to

*Price indexed to a base of 100 Source: Reuters, NB Research
factories for numerous industrial applications. Due to its
Though silver’s monetary value is not as appealing as high usage in industrial applications, silver prices have
gold, it is nevertheless considered an important safe always taken a beating on the back of the onset of a reces-
haven asset and it is hard to doubt this feature. By surging sion or slowdown. The same happened in 2008 when
in line with its rich cousin in times of financial crisis, the prices plummeted by over 50% followed by the crisis.
white metal testified its status as a safe haven asset. The graph plots Institute of Supply Management Index,
an important indicator to measure the level of manufac-
Silver prices are also seen to be taking support from the turing activities in an economy, with silver prices.
weakness in the dollar in the recent past, underscoring its
monetary value. Going by the weak outlook for the dollar The strong correlation between these two, indicate that
in the coming quarter, silver is likely to surge higher. market participants have been accounting for an
improvement in manufacturing activities in silver prices.
Gold - Silver Ratio
100
90
Institutional Demand At An All-time High
9700 20
80
19
9200 18
70
8700 17
60 16
8200 15
50
14
7700 13
40
12
9 May'09
9 Oct'09
9 Jan'06
9 Jun'06
9 Nov'06
9 Apr'07
9 Sep'07
9 Feb'08
9 Jul'08
9 Dec'08
7200
11
6700 10
4 Oct'09
29 Oct'09
23 Nov'09
12 Apr'09
7 May'09
1 Jun'09
26 Jun'09
21 Jul'09
15 Aug'09
9 Sep'09
2 Jan'09
27 Jan'09
21 Feb'09
18 Mar'09

iShares ETF Holdings (in tonnes) Silver Prices ($ per oz)
Gold to silver ratio is considered an important tool to
gauge valuations of these metals. In the first half of the Source: Reuters, iShares ETF, NB Research
last century, gold and silver were on a similar footing in
terms of monetary value. Taking into account the ratio The investment demand in silver has witnessed unprec-
level pre sub-prime crisis, it was found to be in the range edented interest from Exchange Traded Funds (ETFs)
of 40 - 60 with an average of 50. lately. This metal has also been widely sought in the form
of coins. In fact, this accumulation is making up for the
However, this ratio has shown large deviations of late, loss in demand from the industrial sector, which was hit
touching a figure of as high as 90. Considering this ratio in the recession.
as a good valuation measure, we are likely to see some
price adjustments in gold and silver. Estimates say that investment demand for silver (in the
form of silver coins and ETF inflows) will grow to 4,850
Various permutations and combinations indicate that tonnes this year – almost a 20% increase from 2008.
silver will have to outperform gold in order to achieve the Mind you, this interest can go even higher on the back of
past average of 50. the recent surge in prices.
38
Deﬁcit/Surplus Remains Unanswered present, gold has already crossed the high of $850 made
in 1980 without adjusting to inflation whereas silver is
870 way below that mark of $50 an ounce achieved in 1980.
850 Silver seems to have a wide room to rally further from
In million oz
830 the current levels.

810
High Swings In Volatility
790
770
2003 2004 2005 2006 2007 2008 Due to the fact that most silver produced each year finds
Demand Supply
its way to the factory, the amount of silver that arrives in
the retail market is only a small percentage to the total
Source: GFMS, NB Research actually produced. With such small amounts of the metal
Estimates show wide variations while measuring circulating, silver is prone to volatile swings that occur
deficit/surplus this year. GFMS sees that silver supply with even the smallest shift in demand.
and demand fundamentals will turn negative as fabrica-
tion demand would fall sharper than mine supply and any Although the volatility is short-lived, silver can move
surplus would have to be absorbed largely by investors. twice as much as gold in a single day and the shiny metal
is most likely to explode in price with any major institu-
But Dennis Wheeler, the silver producers’ chairman and tional activity.
CEO told the Denver gold forum’s gathering that he
continues to see a deficit of about 100 million ounces for OUR VERDICT
silver this year. If the latter is to be believed, then silver
is in for a long bull run. Identifying which driver - industrial demand or monetary
value - is applying maximum pressure at any given time
Remember The High Of ‘1980’ can be difficult to analyze. We expect both pressures to
remain in force over the next quarter, which make silver
Remember the year 1980 when gold made a high of $850 an attractive investment option at this point in timE.
per ounce and silver hit $45 per ounce. Coming to the
Suresh Hundia
President of Bombay Bullion Association and the chairman
and proprietor of Hundia Exports talks to Beyond Market
on investing in gold and the future prospects of this yellow
metal.
Q. In spite of being the largest consumer of yellow touched Rs 18,000, jewellery buying has further declined
metal, India has very little say in international despite the marriage season and festive time as customers
markets. How do you read that? are using old scrap gold to make new jewellery instead of
buying new gold from the market.
Till 2008, India was the world’s largest buyer. But in
2009, when gold prices crossed Rs 15,000, we noticed a India is an importer of gold. We don’t have mines in
drop of 40% in gold imports. And when prices cross Rs India. We have to turn towards international markets to
15,000, the demand for jewellery is majorly affected. purchase gold. And gold prices are determined by
When prices touch the levels of Rs 16,000, old gold scrap international market forces and not by one mine or one
starts coming in in bulk. And today when the prices have country. In 2002 and 1999, the production cost in the

39
mines was around $350 an ounce and yet gold was hardly any advertisement in this sector. And the common
around $252 an ounce. And the major reason for the man doesn’t understand the concept of paper gold but
current gold prices is the weak dollar along with invest- prefers gold in a more tangible form at home.
ment demand by hedge funds and ETFs. I feel that there
is no retail demand for the yellow metal. We need to understand that gold ETFs in India are differ-
ent from those abroad as there is no physical delivery
Q. What is the price perception of Indian consumers? mechanism in India. So if you hold 1,000 units of gold
How far have they adjusted to the prevailing prices? ETFs, the only way to procure physical gold is through
sale of these paper units and then purchase gold from the
The demand for jewellery has dropped in terms of spot market.
quantity but amount-wise there has been no drop in the
sale of gold. For example, two years ago, the average Furthermore, holding 1,000 units of ETF securities in
sales done by Hundia Exports would have been around demat accounts cost you an average of about Rs 16,000 to
300 kgs. But due to the rise in prices, the sale has dropped Rs 17,000 which doesn’t make gold ETFs an attractive
to 100 kgs but the income has not fallen. investment option in India. Also, the common man in
India is not well-educated about ETFs even though ETFs
Also imports have fallen by around 40% to 45%. In have given a return of around 49% in the last two years.
2006-07 import was the highest at 735 tonnes. But gradu-
ally the demand kept falling. Last year, it was around 500 How has the tremendous increase in prices affected
tonnes and this year it is expected to fall further. the supply of gold scrap in spot markets?
Q. Why do you find a stark difference in import Scrap supply in India has gone up drastically with the rise
estimates by BBA and GFMS? in gold prices. We expect a jump of almost 100% this
year. The scrap supply could be to the tune of 200 tonnes
The figures quoted by BBA are purely import figures of this year. After the day gold prices touched Rs 18,000, the
gold consumed in India, whereas the figures quoted by supply of gold scrap receded. I feel the drop in scrap
the GFMS include the amount of gold that is re-exported. supply is due to the expectations of people that prices
For example, SEZs in India import 200-300 tonnes of may rise further. So no scrap gold has arrived in India in
gold against exports which is duty-free. GFMS also the last 15 days.
considers the chunk of imports which is duty-free and has
nothing to do with the consumption in India. There was news that jewellers are demanding lower
lease rates from banks when lease rates are already
Q. Do you think that the focus is shifting from low. Why is it so?
demand for jewellery to investment demand in India?
The global lease rates are less than 1%. So bullion
In India, jewellery is never purchased from investment bankers in India import at these rates. But when a bank
perspective. Consumers buy jewellery only to use them gives a loan to domestic jewellers, it has to deposit 23%
as ornaments. In fact, buying jewellery as an investment of that amount with the RBI. This has caused the lease
is not a good option as gold loses about 20% to 25% of its rates in India to hover around 5-7%. So small jewellers do
worth after it is converted into jewellery. not get the benefit of low lease rates prevailing interna-
tionally. Only large bullion players get this benefit.
On the other hand, investing in gold in the form of coins
is a better option as one doesn’t lose a single penny. What are your comments on India buying 200 tonnes
Young and educated investors invest in coins to the of gold from the IMF at such a high price?
extent of 90% of the total investment demand.
I feel that this is a good move for India. In fact the RBI
Q. How is investing in gold through ETFs favourable must purchase more gold. But gold has been lent to
as compared to buying in physical markets? Where international bullion bankers at the rate of 1%. This gold
does Indian gold ETF industry stand today and do can be lent to the Indian bullion bankers who will be
you see any significant expansion in this industry? paying an interest rate of around 4% to 5%.
ETFs in India have completed around 2.5 to 3 years. But The Indian government already has around 350 tonnes of
most Indians don’t know about these ETFs. There is a gold. Add to this, the recent purchase of 200 tonnes of
lack of awareness about gold ETFs in India as there is gold. Holding gold has some costs associated with it in
40
the form of vaults, security, transport and opportunity phenomenal fall in retail demand.
costs. It makes sense to bring the recent purchase to India
and earn returns to the tune of 4% to 5%. India has forex Q. What is your outlook on gold?
reserves of about $300 million. So this move by the RBI
is also aimed at hedging against the fall in the dollar. I I don’t advice investing in gold at current levels. I was
would say India should buy more gold, but wait for a expecting gold to touch the level of Rs 18,000 per 10 gm,
healthy correction in prices. which we have already achieved. My price perception is
based on the study of production and demand. These
Q. Why isn’t there any significant rise in mine supply statistics do not justify the current levels.
despite prices going northwards?
As far as central banks’ buying is concerned, most of
We need to understand that miners have already sold the them are done with buying gold. Another development
production of the next two years in the futures market to that signifies a weakness in prices is the fall of $50 per
the central bankers. Moreover, the recent surge in prices ounce witnessed on the news of the Dubai fiasco.
does not mean that the demand has outdone supply. For Normally, any financial/economical shock tends to
example, last year we noticed that although the total support the gold prices, it was not so in this case, indicat-
demand for the yellow metal was 1,800 tonnes, the ing a weakness in prevailing prices. However, the prices
miners had supplied 2,680 tonnes. I feel that the market is may touch $1370 per ounce supported by speculative
largely over-supplied this year too as there has been a forces. But the chances of a correction are more likelY.
We don’t just help you invest your money, at Nirmal Bang it’s a relationship beyond broking
S MS ‘BANG’ to 54646 w w w. n i rm a l b a n g. co m

41
Cotton:
India’s
White
Gold
The outlook for Indian cotton looks
bullish due to the increase in demand
from China, Bangladesh and Pakistan
C
otton is grown in around 80 countries in the edible oil. The remaining cotton seed oil cake or
northern, central and eastern regions of the kapaskhali is used for cattle feeding.
world as the climate in these parts is conducive
for the growth of this crop. The chief cotton- Global Demand And Supply Scenario Of Cotton
producing countries of the world are China, India, USA,
Pakistan and Brazil. Since the last decade, there has been a steady growth in
the production of cotton. The consumption of cotton has
Cotton is used to fabricate a large number of items. The also increased.
basic need for cloth is fulfilled by cotton in the form of
textile products (terry cloth, high absorbent bath towels, China is the major producer and consumer of cotton in
denims, etc) and yarn (crochet and knitting). It is also the world. It has the capacity to produce almost 35
used to make fishnet, coffee filters, tent, gun powder, million bales every year, which contributes almost
cotton paper and book binding. one-third of the total world production.
Raw cotton passes through a long process and bears two Since 2003, exports from China have been falling steeply
types of fibres - short fibre and long fibre. The ginning of on the back of increased exposure in the textile industry.
raw cotton produces long fibre, also known as lint, which Robust economic growth in countries like India and
is used to make fine silky fibres, paper and raw material China has hugely contributed to the total consumption of
for cellulose. This process also creates cottonseed oil cotton. There is sufficient ending stock of cotton every
along with lint. Cotton seed oil is refined and used as year in the world.
Global Demand And Supply Situation (in million metric tonnes)

Year Beginning 1st August 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (P)
World Beginning Stock 10.48 8.71 11.58 12.26 12.68 12.08 12.42
World Cotton Production 20.96 27 25.64 26.75 26.03 23.41 22.34
World Cotton Consumption 21.74 23.58 24.96 26.37 26.4 23.11 23.6
World Cotton Exports 7.24 7.75 9.74 8.11 8.36 6.55 7.05
World Ending Stocks 8.71 11.62 12.26 12.68 12.08 12.42 11.16
Source: As per latest ICAC release dated 2nd Nov’09
42
The carry forward stock for 2010 is expected to be 11.16 by 7.7% and 4.4% respectively in the current year as
million tonnes. The production of cotton in India might compared to the previous year.
fall by 1 million bales from the expected figure due to
drought and floods in parts of India. Domestic Scenario
Worldwide Production (million bales)
140
Punjab 6.29%
120
Haryana 5.04%
100
80 Gujarat
32.37%
60
40
Maharashtra
22.30%
20
Andhra Pradesh
0 19.06%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Others 27.90 29.89 26.10 26.84 31.91 30.46 26.16 23.44 21.06 19.69
United States 17.10 20.30 17.20 18.25 23.25 23.89 21.58 19.20 12.80 12.49
Pakistan 8.30 8.26 7.90 7.84 11.13 10.16 9.90 8.90 9.00 9.40
India 10.90 12.30 10.60 14.00 19.00 19.05 21.80 24.60 22.50 24.25
China 20.30 24.40 25.20 23.80 30.30 28.40 35.50 37.00 36.70 31.50
Brazil 4.31 3.51 3.80 6.01 5.90 4.70 7.00 7.36 5.50 5.40 India was once the third largest producer of cotton. But in
2007, it rose to the second position with a production
Source: USDA Report capacity of 30 million bales of cotton every year, after
Despite the global financial crisis in 2008-09, cotton China, but marginally higher than the US. Cotton
isolated itself. Cotton consumption has increased by 45% sustains India’s textile industry which accounts for 20%
from 1997 to 2009 not only because of robust economic of the total national industry production. The industry
growth but also due to favourable prices of fibre across also provides employment to over 15 million people.
the world.
Technology and cropping patterns are being continu-
Consumption Data ously upgraded across the world. However, India and
China are the only two countries which have upgraded
Consumption Of Cotton (in ‘000 bales) their technologies to the fullest and doubled their produc-
50000 tion levels since the past few years. The production of
40000
cotton in India doubled in 2004 and 2007 as compared to
the production in 1997-98. However, the production
30000 decreased by 8% in 2008-09 due to insufficient rainfall
and unfavourable weather conditions. Despite the
20000
continuous increment in supply, the area under cotton
10000 acreage had been falling till 2003. But the yield gained
momentum due to better technology in 2004, as shown in
0
Bangladesh Brazil China India Pakistan Turkey United States the table.
2003-04 2004-05
2000-01
2005-06
2001-02
2006-07
2002-03
2007-08 2008-09 2009-10 Area, Production And Yield Of Cotton
350 600
Source: USDA Report 300 500

Area, Production
250
400
Yield
200
A rally in the consumption of cotton is visible on a year-

300
150
200
100
on-year (Y-O-Y) basis in China and Bangladesh whereas 50 100
the consumption has been decreasing in the United 0

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
0
States. However, the consumption in India and Pakistan Area(Lakh hectares)

Production(Lakh Bales)
89.04
158
92.87
165
87.91
156
85.76
140
87.3
158
76.67
136
76.3
179
87.86
243
86.77
241
91.44
280
94.39
315
93.73
290
is almost the same since the last three to four years. The Yield(kgs/hectare) 302 302 302 278 308 302 399 470 472 521 567 526
production in India and Pakistan is expected to increase Source: Cotton Advisory Committee (1 bale = 170 kg)

43
In the year 2009-10, the availability of cotton is expected The MSP (minimum support price) or the minimum price
to be higher by 11% as compared to the previous year. that must be paid to the farmers to procure their produce
The opening stock of 2009 was more than double as was Rs 2,500 per quintal in 2007-08 for medium staple
compared to the previous year. Despite excess supply of cotton, which is Rs 700 more than the previous year. For
cotton, the carry forward stock is expected to be less in long staple fibre, the MSP was Rs 3,000/quintal, which
2010, due to huge consumption by millers and also a was Rs 750 higher than the previous year. There were no
robust demand from China. The higher increment in buyers to purchase cotton at theses prices resulting in
prices of raw cotton cannot be ruled out for mill and huge losses by the government.
spinners’ consumption.
Trade In Cotton
Cotton Balance Sheet
Quantity in lakh bales of 170 kg each Cotton is a widely-traded product. The total supply of
cotton in the market has got a boost not only because of
Item 2008-09 2009-10
liberalization in India but also because of industrializa-
SUPPLY tion and geographical change of mills. The global
Opening Stock 35.5 71.5 consumption is increasing each day thus giving a push to
Crop Size 290 295 exports and imports.
Imports 10 7
Total Availability 335.5 373.5 Because of absolute cost advantage that India enjoys in
DEMAND the production of cotton, there has been an increase in
Mill Consumption 190 207 exports of this commodity over the years. India’s export
Small-Mill Consumption 20 23 was only 94,000 bales in 2000-01 and increased to 2.3
Non-Mill Consumption 19 20 million bales in 2008-09. India exports cotton mainly to
Total Consumption 229 250 countries like China, Pakistan and Bangladesh. But
Exports 35 55 exports from China have diminished due to the increase
Total Disappearance 264 305 in domestic demand.
Carry Forward 71.5 68.5
Major Exporters Of Cotton (in ‘000 bales)
Source: Cotton Corporation Of India
25000
Gujarat, Maharashtra, Andhra Pradesh, Madhya Pradesh 20000
and Punjab are the major producers of cotton in India and 15000
contribute almost 87% of the total production.
10000
Kadi in Gujarat and Akola in Maharashtra are the major 5000
trading hubs and delivery centres for the concerned 0

cotton exchanges in India. Unfavourable monsoon hit
2008-09
2009-10
2005-06
2006-07
2007-08
2002-03
2003-04
2004-05
2000-01
2001-02
cotton production in all the major states except Andhra

Pradesh in 2008-09. Brazil China India Pakistan United States
Source: USDA Report

State-wise Production Of Cotton
120
Cotlook Index
100
Cotlook index is a price barometer for world cotton
Lakh bales of 170 kgs
prices. Prices of cotton in US cents per lb in USA have

80
60
gained by almost 30% from the same period in October
40
2004-05. This surge was supported by demand in the
20 market mainly from China.
0
2004-05 2005-06 2006-07 2007-08 2008-09
Punjab 16.5 20 24 22 17.5 Global recession which could severely affect the fibre
16.5 13 15 16 14
increased fear in consumers, which in turn hit demand in
Haryana
Rajasthan 10 11 9 9 7.5
Gujarat
Maharashtra
73
52
89
36
103
50
112
62
90
62
2008-09.
Madhya Pradesh 16 18 19 21 18
Andhra Pradesh 33 32 36 46 53
Karnataka 8 6.5 6 8 9 Cotlook A index has risen by almost 8% this year as
compared to the same period last year. Cotlook Index
Tamil Nadu 5.5 5.5 5 5 5
Others 1 1 1 2 2
represents offering prices in the US cents pound of raw

Source: Cotton Corporation Of India cotton in the international raw cotton market and prices
44
are calculated on the basis of prices that are offered to the Kolkata-based East India Jute & Hessian Exchange
final consumer that is mills. (EIJHEX), (The present EIJHEX was formed in 1945
after amalgamating Calcutta Hessian Exchange Ltd.)
Prices are derived from the average of 10 cheapest rates
that are traded in a single day in Far Eastern quotations. South India Cotton Association (SICA)
These quotations refer to those selected from 19 destina-
tions including Bangkok, Laemchabang, Jakarta, Hong National Multi-Commodity Exchange of India Ltd.
Kong, Penang, Kelang, Singapore, Busan, principal (NMCE)
Japanese and Chinese ports, Manila, Tainan, Keelung,
Semarang and Surabaya, where cotton is traded. These Surendranagar Cotton Exchange
destinations are chosen because no surcharge tax is
levied at these ports. Surendranagar Cotton Exchange is the only active
Exchange where kapas is listed. But due to Bhandhani
Cotlook A Index (FE) Price Movement contract, liquidity is comparatively less.
75 68.93 66.82
NCDEX Kapas February 2010 Contract
US cents per lb
62.3
65 57.74 57.03
50.89
55 700
680
45 660
Prices per 20 kgs

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 640
620
600
Prices in October 580
560
Source: Cotton Advisory Committee 540
520
World Cotton Prices 500
11 Apr’09
11 May’09
11 Jun’09
11 Jul’09
11 Aug’09
11 Sept’09
11 Oct’09
11 Nov’09
Monthly average Cotlook A Index (FE) from 2004-05 onwards
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
FE Index in US Cents per lb
August 51.91 53.23 59.88 66.62 78.04 64.14
September 55.03 53.94 58.82 68.12 77.09 63.99 Source: NCDEX
October 50.89 57.74 57.03 68.93 62.3 66.82
November 47.71 55.87 57.39 69.68 54.96 Outlook
December 47.51 56.09 59.43 69.52 55.47
January 50.23 58.36 59.06 73.21 57.71
February 48.69 59.66 57.86 75.05 55.21 The outlook for Indian cotton looks bullish due to the
March 55.34 57.59 58.42 80.18 51.5 increase in demand from China, Bangladesh and
April 55.99 56.23 57.13 75.44 56.78
May 54.9 54.35 55.57 74.12 61.95 Pakistan. Low production in USA, Pakistan and China is
June 52.66 55.14 60.61 77.04 61.39 also a positive factor for exports.
July 53.17 55.42 67.84 77.29 64.80
Source: Cotton Advisory Committee Indian cotton is considered to be of a good quality

because the area under acreage is increasing with the
Several factors influence prices of cotton. The introduc- usage of Bt cotton, which is a higher quality cotton with
tion of genetic engineering and advanced agricultural comparatively low costs.
technologies were a few factors that reduced the total
production cost of cotton. Flood and massive rain in parts of major cotton-
producing states of the country has damaged 20-25% of
The increase in prices of crude oil affects synthetic fibre the standing crops this year and has resulted in delayed
leading to a subsequent switch to an alternative - cotton. arrivals in the market.
This has resulted in an increased demand for the same.
On an average, the daily arrivals to ginners in Gujarat is
Domestic Platforms For Cotton around 280 lakh bales, lower by 55 lakh bales than the
same period last year.
There are three major Exchanges - MCX, NCDEX and
NMCE which have covered almost the entire group of But a downfall could be witnessed due to selling pressure
commodities traded internationally. There are 18 major as stocks have been piling in the markets.
regional exchanges that mainly deal in particular
commodities. Some specialized cotton regional The price of kapas is expected to test the levels of Rs
exchanges are: 700-715/20 kg and the price of cottonseed oil cake is
Mumbai-based Cotton Association of India (CAI) expected to test the level of Rs 1,350/quintaL.

45
&
Present
The new-age equity camp
DATE: 21st November, 2009

VENUE: Suryavanshi Mahal, Sheraton Rajputana Hotel, Jaipur
Matching Wits
With The Best Brains
Beyond Market, a new-age equity camp that is travelling across cities in India, conducted its second of the series at India’s
Pink City, Jaipur on the 21st of November. Nirmal Bang in association with Bloomberg UTV aims to create a platform to
help traders and investors interact with industry experts to enable them to take prudent investment decisions by organizing a
series of investor camps.
The panelists at the august gathering included names like Rajat K Bose - Investment Consultant; Ajay Bagga – Managing
Director and Head of Private Wealth Management at Deutsche Bank AG Private Wealth Management; P N Vijay – Manag-
ing Director of P N Vijay Financial Services Pvt Ltd (PNVF) and Sunil Jain – Vice-President (Equity Research) at Nirmal
Bang. They spoke about the current scenario and future of the markets.
The third camp will be held in Kolkata, the City of Joy on 19th December.
Rahul Arora, Stocks Editor with Bloomberg UTV and compere for the event began by giving an overview of the markets and
the economy. He compared today’s individuals to Formula 1 drivers and farmers. He explained that a speculator/trader is one
who is on the F1 track where if he blinks, he misses an opportunity whereas an investor is like a farmer who sows a seed and
waits for it to grow. He said the concept of timing the markets does not exist and each one can lose money. But it only makes
him stronger if his basics are in place.
P N Vijay formally commenced the equity camp with his take on the markets
P N Vijay beyond 5,000. He said the markets are driven by four broad layers of think-
Managing Director of P N Vijay ing and one needs to understand the current state of these layers and position
Financial Services Pvt Ltd (PNVF) oneself accordingly to make healthy profits.
He has had a distinguished career in the financial
The global economy is the first layer that governs the market. He expects the
sector for over 37 years. Starting his career with
State Bank of India, he later moved to ANZ
Grindlays and then to Citibank.
coming year to be a lot better than 2009 as economies are on the growth path
and once these economies prosper, the markets will follow. The second layer
is the layer of liquidity and has a huge bearing on the market in the ambit of
the economy. The future scenario seems tough to explain. However, he finds the risk and reward scenario favourable in
emerging economies in 2010 for different reasons.
The third layer is valuations. Vijay says that it is more logical to look at 2010-11 valuations to make an assessment of over
or under valuation. According to him earning upgrades will start trickling in from April’10. The fourth layer, sentiments, is
a great driver of the markets in the short term that can create ripples in the market and move it by as high as 20%. With expec-
tations of the Nifty making new highs by Jan-end and an all-time high by the end of 2010, Vijay urges investors to overweigh
their wealth in equities and buy good stocks to make good money with the right advice and analysis.
Ajay Bagga Next in line was Ajay Bagga, Managing Director and Head of Private
Managing Director & Head-Private Wealth Management at Deutsche Bank AG. He said various kinds of stimu-
Wealth Management at Deutsche lus packages were introduced to help the economy surface through the reces-
Bank AG sion. But now the question remains how the economy can get out of such a
stimulus-driven situation. This would determine what would happen to the
He is responsible for Deutsche Bank's local
private wealth management business that focuses
economy and the markets in the next few years.
on serving the wealth management needs of high
net worth and entrepreneurial clients. He has 19 He tried to ‘make sense of the world we have never been in’. Nations have
years of experience in the financial services
sector. seen several depressions but never before did they witness one with a $16
48
trillion stimulus. He also charted out 10 commandments for investors during the course of his address. He said consumption,
investment and savings are important pillars of growth. He further suggested asset allocation depending on the fact that the
investor is creating a defensive, conservative, balanced or growth portfolio. He said he felt India is fairly valued and 2011
would be the growth year adding that he expected acceleration in the next six months.
He said the Sensex may achieve the 20,000 level and Nifty the 6,000 level by December ’10. The rupee will strengthen while
a two-year target for gold is $2,000/ oz. Suggesting a model equity portfolio, he outlined risks that can hit economies in the
near future. In his parting shot, he said that no one knows how to stay away from the madness of crowds.
Rajat K Bose, on the other hand, dwelt on the importance of learning the
Rajat K Bose steps of trading profitably. However good a trader one might be, maintaining
Investment Consultant discipline is important, he said. Risks can be controlled only with internal
control. He said a trader’s worst enemy is he himself. A person must trade
He is a well-known technical analyst in the
Indian equity market. While he is better known
according to his personality.
for his technical analysis, he also does fundamen-
He must, therefore, keep preconceived notions aside and focus on the move-
tal analysis and is a keen student of financial and
capital market history. He has been studying
ments of prices. He said he would prefer to trade the Nifty. The golden rule
markets and companies for more than 15 years.
of profitable trading is to cut your losses short and let your profits run. He
advised traders to never average a loser and reduce positions in a volatile
market. His three basic trading rules are preserve capital and ensure longevity, aim at attaining consistent profitability and to
not gun for super normal profits – if you get it, grab it. Multi-baggers don’t come with billboards, they just happen, he
concluded.
Nirmal Bang’s Sunil Jain gave his perspective on mid-caps. He said we saw
Sunil Jain an economic turmoil last year. To safeguard against further downfalls, new
Vice-President (Equity Research) at rules were made by the governments of different nations, which may have its
Nirmal Bang negative impact as well. So it’s important to be cautious. It is unclear as to
A Chartered Accountant with over 16 years of
when developed economies will recover from the financial meltdown.
experience, he looks after the equity research Hence, it is advisable to think with a near-term horizon, of say three months
department of the company. He addresses or so. Speaking of opportunities in the short-term, Sunil said he felt for
various conferences on market directions. His
views are regularly sought by TV channels.
mid-cap stocks to run up, as large-caps have become expensive. The current
situation is such that the large-caps are expensive and there are enough
reasons to support the same. However, certain internal and external risks that
can hamper the performance of stock markets exist. He said stocks that could give 15 to 20% upside in the next three months
are Polaris Software Lab Ltd (Rs 165), Sunil Hitech Engineers Ltd (Rs 180), Unity Infra Projects Ltd (Rs 480) as well as
PVR Ltd (Rs 133).
The event concluded with a round of intelligent questions from the audience which was satisfactorily answered by the panel-
ists. This was followed by a sumptuous lunch.
The third of the series will be held on 19th December at Kolkata. Hope to catch you therE.

49
TECHNICAL OUTLOOK FOR THE FORTNIGHT
KEY HIGHLIGHTS thereafter. These Nifty levels appear to be good
The Indian markets remained volatile in the last buying opportunities.
fortnight due to a major sell-off that was seen in China
and other Asian markets, following news that Dubai One can look for a trend reversal only if the Nifty slips
World, with $59 billion worth of liabilities, is seeking below the 5,010 level, which is the trend line support
a delay in debt payments. Banking, metals and realty for this entire up trend. Markets are showing a positive
stocks led the broad-based selling. But on 30th Nov, sign as buying is witnessed at lower support areas.
stock markets rebounded strongly as investor There is a strong possibility that the markets could hit
sentiments were lifted by better-than-expected a new calendar high in the December series. Techni-
September quarter GDP numbers and also receding cally, unless we see the 4,990 level breaking with huge
fears of the impact of Dubai's debt crisis. Asian volumes and the Nifty trading below decisively, every
markets rebounded from their steep fall last week. fall in the market can be taken as a buying opportunity.
India's GDP in the second quarter of this fiscal was
above economists’ expectations. The GDP grew 7.9% The short-term moving average of 20 and 50 day for
from last year after rising 6.1% in the previous quarter. the Nifty is at the levels of 5,060 and 4,995, which are
well protected and clearly suggest that in the short run
Gold futures settled below $1,170/oz on 7th Decem- the markets appear to be heading for a big move but
ber, losing 4% as better-than-expected job data rose the street is not optimistic. In the near term, support
unexpectedly. The Dollar Index rose by almost 1.5%, for the Nifty is at the 5,010 level. Unless we see the
triggering heavy margin selling in commodities markets closing below these levels, we don’t expect
including precious metals. any fresh sell-off happening. On the higher side the
5,150 and 5,180 levels continue to act as a supply
CURRENT TREND zone. Unless the Nifty closes above the 5,200 level
The overall short-term trend looks slightly cautious in and holds above that level for some time, fresh
the absence of any positive trigger and huge selling commitments should be avoided. Above the 5,200
pressure seen around the 5,150-5,180 levels. But the level, the next leg will be sharp and we might test the
medium term to long-term trend remains bullish as the 5,370 level in the coming months.
undertone is quite optimistic. The FIIs flow has been
positive during the fortnight and the domestic players STOCK IDEAS
remained mixed. Stocks like Ador Welding Ltd, Century Textiles &
Industries Ltd, Gabriel India Ltd, IVRCL Infrastruc-
Sectorally speaking, the leadership continued in tures & Projects Ltd, Indian Infoline Ltd, Prakash
pharma, IT and auto stocks, while banking, metals and Industries Ltd, Hotel Leela Venture Ltd, Indian Hotel
realty stocks continued to take a knock on negative Co Ltd, Kalindi Rail Nirman Ltd and Zensar Tech-
global cues. As the Nifty remained in the tight trading nologies Ltd look attractive buys from an investment
range of 4,945–5,180 levels with choppy sideways perspective.
movement, we believe that going forward the broader
indices will be outperformers.
NIFTY DAILY FUTURES CHART: The Nifty
Technically the current trend is very strong. But the futures is currently trading in the range of the 5,165 –
level of confidence is not high as negative global news 5,050 levels. Unless markets break this trading range,
can spoil the ongoing momentum. we don’t see any major action taking place. Above the
5,165 level, the next leg could be towards the 5,310-
STRATEGY 5,370 levels and below the 5,050 level. The fall can
The outlook for December looks very positive as FIIs take us to the 4,930-4,840 levels. Keep a close watch
might go on a Christmas vacation and major action on two points - 5,050 and 5,165 on the closing basis in
will be shifted to mid-cap and small-cap stocks. In the the coming days and trade accordingly.
short term the trend is slightly mixed as the range is
very narrow from the 5,050–5,181 levels and it is very Outlook: Trend reversal is below the 4,995 level and
difficult to take a call in such a short time. A strong positive development is above the 5,165 leveL.
support exists at the 5,050 level and the 4,990 level
50
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It’s simplified...
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Done That
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SMS ‘BANG SUB’ to 54646

Contact Mr Gaurav Mohta at 9820896015
DISCLAIMER
In the preparation of the content of this magazine, Nirmal Bang Securities Private Limited has used information that is publicly available, including information developed
in-house. Such information has not been independently verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or
estimates herein reflect the judgement of Nirmal Bang Securities Private Limited at the date of this publication/ communication and are subject to change at any point without
notice. This is not a solicitation or any offer to buy or sell. This publication/ communication is for information purposes only and is not intended to provide professional,
investment or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual
recipients. For data reference to any third party in this material no such party will assume any liability for the same. Further, all opinion included in this magazine are as of
date and are subject to change without any notice. All recipients of this magazine should seek appropriate professional advice and carefully read the offer document and before
dealing and/ or transacting in any of the products referred to in this material make their own investigation. Nirmal Bang Securities Private Limited, its directors, officers,
employees and other personnel shall not be liable for any loss (financial or otherwise), damage of any nature, including but not limited to direct, indirect, punitive, special,
exemplary and consequential, as also any loss of profit in any way arising from the use of this material in any manner whatsoever. The recipient alone shall be fully
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commodities. commodities.

Fo r Pr i vate Ci rc u l at i o n Vo l u m e 1 Is s u e 2 2 14th Dec ’09

It’s just a year and to most people it

Precious metals, base metals, ener- 11 12

What was so different between 2008 14 15 16

It’s Time To Wake Up

The Dollar Jugglery

Good Weather Best

A Barometer Worth Watching

Editor-in-Chief & Publisher: Rakesh Bhandari Strike While It Is Hot

We, at Beyond Market welcome your views,

Beyond Market 14th Dec ’09 It’s simplified...

4Commodity Exchanges have been set up to make trading

14 piecing this special issue together. Special thanks to Kunal Shah,15

The Nifty is finding support at the level of 5,040 and

Beyond Market 14th Dec ’09 It’s simplified...

What was so different

Beyond Market 14th Dec ’09 It’s simplified...

Amount: In Billion US $ Strategic Equity In Commodity Firms

opportunities abroad. 10000

On the other hand, smaller countries not as developed as 6000

India, are making the most of the financial opportunities 4000

sleeping tiger to wake-up while its neighbours continue 0

SWF Consensus Meter (A Strategy Evaluation Tool) Source: Wikipedia, NB Research

A report by International think tank, the Global Footprint

Foreign Exchange Reserves 500

China Investment Corporation paid nearly $1 billion to

Beyond Market 14th Dec ’09 It’s simplified...

SMS ‘BANG’ to 54646 w w w. n i r m a l b a n g. c o m

Beyond Market 14th Dec ’09 It’s simplified...

Considering the last two quarters when the dollar lost

negative interest rates. This phenomenon further under-

pinned this trade and thereby the dollar yielded to

Broadly the dollar index, a gauge of dollar performance

Furthermore, weak economic fundamentals added to the

THE ROLE OF THE GREENBACK IN THE

Beyond Market 14th Dec ’09 It’s simplified...

Beyond Market 14th Dec ’09 It’s simplified...

Beyond Market 14th Dec ’09 It’s simplified...

Despite its usefulness, this index is not widely recog-

THE BALTIC DRY INDEX

The shipping industry, maritime lawyers and

Supply of ship is relatively inelastic as it takes more than 12000

Sometimes weather too plays a crucial role in determin- 4000

materials. And for logistics, cold weather may cause ice

Beyond Market 14th Dec ’09 It’s simplified...

Chinese Coal Imports (Mn Tonnes)

Baltic Dry Index

Baltic Dry Index Vis-A-Vis China’s Steel Exports

A very strong correlation has been observed between 12000

Baltic Dry Index

coke and coal from 2007-08. The demand for coal

in the Handysize Index in 2009 was to a certain extent,

absence of derivatives and speculative elements.

purchaser. It normally takes 25 to 45 days to complete 8000 400

For instance, the rising commodity demand should be

Beyond Market 14th Dec ’09 It’s simplified...

Beyond Market 14th Dec ’09 It’s simplified...

DATE : 19th December, 2009

demand for industrial metals in the coming years. Other

Beyond Market 14th Dec ’09 It’s simplified...

Possibilities Beyond Imagination

SMS ‘BANG’ to 54646 Contact at: 022-30272323, e-mail: contact@nirmalbang.com