Reform boost to commodity mkt as cabinet clears FCRA Bill


Giving a reform boost to commodity markets, the government today approved the FCRA Bill that seeks to provide more powers to sectoral regulator Forward Markets Commission (FMC) and allow a new category of products.


Giving a reform boost to commodity markets, the government today approved the FCRA Bill that seeks to provide more powers to sectoral regulator Forward Markets Commission (FMC) and allow a new category of products.


“The Cabinet has approved the Forward Contract Regulation Act (Amendment) Bill. It will give more teeth to FMC. Farmers will also benefit,” Food Minister K V Thomas told PTI.


The Forward Contract Regulation Act (FCRA) Bill, considered vital for the development of futures trade, aims to provide financial autonomy to the regulator. FMC can become self-sufficient by collecting revenues in form of fees from exchanges after the passage of this Bill in parliament, Thomas said. The retirement age of FMC chairman and its members will go up to 65 years from 60 years, if parliament passes the Bill. The number of members in FMC has also been proposed to increase from four to nine. The Bill also seeks to facilitate entry of institutional investors and pave the way for introduction of new category of products, like Options.


The bill seeks to increase penalty on defaulters to Rs 50 lakh from the existing Rs 25 lakh. At present, the country has five national and 16 regional commodity exchanges. Recently, FMC had given its approval to the Universal Commodity Exchange to operate as a national bourse. The cumulative turnover of the commodity exchanges is about Rs 80.30 lakh crore till September 15 of the current fiscal.

Check out key amendments to the Insurance Laws Bill

Following are the key amendments proposed in the Insurance Laws Bill 2008, chief among them being increasing the cap on foreign equity in insurance companies to 49% from 26% earlier.


Following are the key amendments proposed in the Insurance Laws Bill 2008.


1. Foreign equity cap is proposed to be kept at 49 per cent as provided in the Insurance Laws (Amendment) Bill, 2008 as against the 26 percent.


2. Foreign reinsurers will be permitted to open branches only for reinsurance business in India and cannot invest directly or indirectly outside India the funds of policyholder.


3. In order to encourage health insurance in India, the capital requirement for a health insurance company has been proposed at Rs 50 crore instead of Rs 100 crore for General Insurance companies.


4. The definition of ‘health insurance business’ has been revised so that health insurance policies would cover sickness benefits on account of domestic as well as international travel.


5. Regarding the obligatory underwriting of third party risk on Motor Vehicles, a separate Motor Vehicle Insurance and Compensation Legislation is being proposed by the Government.


6. The period during which a policy can be repudiated on any ground, including misstatement of facts etc. has been confined to three years from the commencement of the policy and no policy would be called in question on ground of misstatement after three years.


7. Public sector general insurance companies and GIC will be permitted to raise capital from the market to meet future capital requirements, provided that the government’s shareholding does not fall below 51 percent.


 8. Appointment of agents is proposed to be done by insurance companies subject to the agents meeting the qualifications, passing of examinations etc. as specified by IRDA. While the licensing of agents be no longer with IRDA, the Authority is empowered to take action against agents.


9. To specify fine on intermediaries and insurance companies for misconduct of intermediaries and to make appropriate provision in the legislation to effectively deter multilevel marketing of insurance products in the interest of policyholders, and to curtail the practice of mis-selling.


10. In order to improve the functioning of surveyors and bring in greater transparency, certain modifications are made to provide for regulations on qualifications regarding appointment of surveyors and to strengthen the Institute of Indian Insurance Surveyors and Loss Assessors


11. The commission structure and the Code of conduct for agents is to be specified by regulations by the IRDA and accordingly, ceilings on commission in the Act have been done away with and the insurance companies along with the agents are made liable for any violation of the regulations and stiff penalties have been provided for mis-selling, rebating and marketing of products through multi level marketing schemes.

Monsoon to End in India: Cement, Fertilizer & Electricity Impacted

The Monsoon season hit India late. America was not alone in feeling the drought, India also got hit. When the needed Monsoon came, it was a bit late. Now weather forecasters expect the Monsoon to end. What was the economic impact of the late Monsoon?

Monsoon India

Impact on Cement prices

With pickup in monsoon, cement prices weakened in most of the regions. Prices fell sharply in Bhubaneswar (~INR50/bag), Hyderabad (~INR44/bag), Lucknow (~INR30/bag) and Jaipur (~INR25/bag). Prices were relatively more stable (down by INR1-5/ bag) in Chennai, Mumbai, Ahmedabad, Kolkata and Chandigarh.


Kharif food grain output may be lower than last year’s 130 mn tonnes, as scanty rain in the early part of the monsoon hit plantings

Impact on politics

If the President does not call a special Parliament session, the Government can very well decide to do away with the winter session. Constitutionally, Parliament has to meet at least once in six months. The last session ended on 7 September, 2012. So, the government can choose to avoid a Parliament vote until the Budget session. While this would surely result in howls of protest from the opposition, washout of almost the entire monsoon session would lessen public outcry against this move.


The Economic Times reports that electricity rates in short-term markets dropped to a record low of INR1.20/unit on Sunday from INR3 a year ago, as the late revival of monsoon rains has reduced agricultural demand and improved hydropower generation, luring more market participants to power exchanges and providing an opportunity to industries such as cement, textiles and steel that had suffered in the summer because of power scarcity.

The Consumer Education Research Society has complained that Gujarat State Electricity Corporation’s PLF dropped to 39.15% in August as against 71.26 % in April. The newspaper said that CERS is of the opinion that GSECL must have a shutdown of many units for planned maintenance due to the monsoon season, while this year’s poor rain resulted in increased demand of power.


The Indian Economy relies largely on the agriculture sector (over 15% of GDP, employs 52% of population), and this sector depends largely on the production and quality of monsoon which is highly unpredictable.


Urea volume declines 5% y-y in August, affected by a weak Monsoon: Urea saw a volume decline of 5% y-y, leading to a 3.8% y-y decline in FY13 YTD. Given the improved sowing patterns aided by a Monsoon recovery, the MSP increase for the current season expected to boost farm income and the government delaying the increase in urea MRP (increased urea-complex differential), we expect ~ 4% volume growth in FY13E, with a strong demand pickup in 2H FY13.


Complex fertilizer volume down 19% y-y but sees a 8.8% m-m improvement: Complex fertilizers reported a 19% y-y decline in August, leading to a 19.6% y-y decline in FY13 YTD. Although Monsoon recovery has stabilized the inventory levels, the sharp price hikes implemented in June are exerting pressure on volume in addition to the lower production levels, given a lack of raw materials.

High retail prices of complex fertilizers to change consumption patterns in favor of urea: Although the impact of a weak Monsoon will not be felt on agriculture with sowing recovering with a decline of just 5% y-y YTD, demand recovery expected currently would be in favor of urea players, where the price differential with complex is at an all-time high and a weaker rupee is beneficial.

Finally and most importantly, Water

Monsoon water by regions in India


News For Investors: Stock Market Action Just Temporary, the Party Will Soon Be Over


In a sense, it is difficult to imagine the stock marketgoing up on bad economic news, but that’s the way it is. The stock market and Wall Street compose a system that only serves itself and its participants. I’d never fight the Federal Reserve in terms of investment strategy, but the stock market betting on a third round of quantitative easing (QE3) illustrates the real problems that the U.S. economy and the eurozone are facing. It is an age of austerity, and there’s very little economic growth to be had.

There are lots of near-term beneficiaries of the current hype; gold and silver stocks are soaring, and it’s a well-deserved turnaround in the precious metals sector. The near-term action in the stock market is good, but it’s even better for gold stocks. The U.S. dollar is under pressure, but that’s what the Federal Reserve wants: increasing money supply, artificially low interest rates, and a weaker U.S. dollar. It’s all in the name of economic growth; but at the end of the day, the business cycle still wants to play itself out and the subprime mortgage-induced bubble is still a force to be reckoned with. Economic growth, as we used to know it, is now a thing of the past.

Intel Corporation (NASDAQ/INTC) is a benchmark stock that I follow regularly, and the company’s third-quarter revenue warning was significant. The company cut its third-quarter revenue expectation to $12.9–$13.5 billion, down materially from the previous range of $13.8–$14.8 billion. The company cited weak economic growth in the U.S. economy and the eurozone, which has consumers holding onto their wallets, for the cut. Tellingly, the company withdrew all other quarterly and full-year expectations. This is definitely not good for both Intel and the stock market.

So while the stock market may still be ticking higher and the Federal Reserve will likely appease Wall Street, the underlying economic data is still weak, and this is why I feel that the stock market will soon top itself out. (See “The Fed Can’t Help the U.S. Economy Anymore.”)

It is likely that 2013 will be a very difficult year; economic growth over the rate of inflation is highly unlikely.

Corporations have pulled out all the stops to keep their earnings afloat, and they’ve done a good job of it over the last couple of years. But with little in the way of economic growth in the U.S., no economic growth in Europe, and declining economic growth in Asia, American corporations are about to feel a blow to revenues. Intel is the perfect example. Earnings in the third quarter can still beat consensus, but that’s only because these expectations have already come way down. The most important number this upcoming earnings season is revenue and we could be in for a nasty surprise.

I want to be bullish going into 2013, but it’s difficult, given minimal economic growth. I had a more positive outlook just a little while ago, but Intel’s news is like a canary in the coal mine. Stock market investors need to be extremely cautious going forward. I repeat my view that a conservative investment stance is warranted, and there’s no reason for long-term investors to be buyers in this market.

Little growth sacrifice inevitable to rein in prices: RBI


As India seeks to control high inflation, RBI Governor D Subbarao has said a little sacrifice in growth is “inevitable” amid efforts to bring down prices to acceptable levels.


Subbarao said criticism is often directed towards the central bank that even though it has raised interest rates and runs a tight monetary policy, inflation is still “high and persistent” and growth has been hurt.


The RBI’s response to the criticism is that “some sacrifice of growth in inevitable, a necessary price we have to pay to bring down inflation. But that sacrifice of growth is only in the short term.


Treasuries Rise As Japan Trade Data Signal Slowdown

Treasuries rose for a fourth day as global equities slumped after Japanese trade figures fell short of economists’ forecasts, reinforcing concern that Europe’s debt crisis and a slowdown in China are damping global growth.

Longer-term securities led advances before the Federal Reserve releases the minutes of its July 31-Aug. 1 policy meeting today. Vincent Reinhart, a former Fed official, urged Chairman Ben S. Bernanke to do more to spur growth. Chicago Fed President Charles Evans said a weakening in global trade is awful. Gains were limited before reports this week that analysts said will show U.S. home sales and durable goods orders rose last month.

“The main drivers today for Treasuries will be the housing data on one side and the equity trend on the other,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Profit taking in equities should be a supportive factor for Treasuries. Existing home sales have the potential to surprise to the upside. That would limit the upside for Treasuries today.”

The benchmark 10-year yield declined two basis points, or 0.02 percentage point, to 1.78 percent at 6:53 a.m. New York time. The 1.625 percent note maturing in August 2022 rose 5/32, or $1.56 per $1,000 face amount, to 98 18/32.

The MSCI World Index of stocks slid 0.3 percent, while the Stoxx Europe 600 Index (SXXP) dropped 0.8 percent.

Japan Exports

Japan’s exports fell 8.1 percent in July from a year earlier, the Ministry of Finance said in Tokyo. Economists surveyed by Bloomberg forecast a decline of 2.9 percent.

Japanese shipments to the European Union slumped 25 percent, the biggest drop since October 2009, and those to China slipped 12 percent, the ministry said. European governments are struggling to find ways to pay their debts, while China’s gross domestic product growth has slowed for six quarters.

“The market is too optimistic on the economy,” said Kevin Yang, head of bond investment in Taipei at Hontai Life Insurance Co., which has $6 billion in assets. “Buy on dips.” Yang said he may increase his U.S. bond holdings today.

The U.S. central bank will consider circumstances in the economy and financial stability to decide whether it needs to step up monetary easing, Evans said to reporters today in Beijing. He declined to elaborate ahead of a scheduled press briefing tomorrow at the U.S. Embassy in China’s capital.

Bernanke should assure investors that “he’ll do whatever it takes” to stimulate the slowing economy, Reinhart, chief U.S. economist at Morgan Stanley, said yesterday.

Jackson Hole

The chairman ought to use his Aug. 31 speech at the Fed symposium in Jackson Hole, Wyoming, to expand his commitment to providing accommodation if needed because the central bank is falling short of its mission, Reinhart said in an interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. Reinhart is the former head of the Fed board’s Division of Monetary Affairs.

The Fed is charged with promoting “maximum employment, stable prices, and moderate long-term interest rates,” according to the central bank’s website.

Investors who predict Treasury yields will rise say there are signs of improvement in the U.S. economy even as other countries struggle. Reports this month on retail sales and nationwide industrial production both showed gains.

Purchases of existing homes in the U.S. rose 3.2 percent in July from the month before, after sliding 5.4 percent in June, based on a Bloomberg survey of economists before the National Association of Realtors report today.

Monthly Loss

Ten-year yields rose to a three-month high of 1.86 percent yesterday from the record low of 1.379 percent July 25. Treasuries have handed investors a loss of 1.4 percent this month, according to a Bank of America Merrill Lynch index. (MXWO)

“I could see the U.S. 10-year yield going up a bit further,” said Roger Bridges, who oversees the equivalent of $15.9 billion as head of fixed income at Tyndall Investment Management Ltd. in Sydney. “The U.S. is beginning to pick up.”

Bridges favors shorter maturities, those that fall least if yields rise, he said. The 10-year yield may climb to match this year’s high of 2.4 percent, he said. An increase to that level by Dec. 31 would result in a 4.7 percent loss for someone who bought today, according to data compiled by Bloomberg.

The Fed is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to August 2042 today as part of its efforts to exchange shorter-term Treasuries in its holdings for those due in six to 30 years to support the economy by putting downward pressure on long-term borrowing costs.

The U.S. central bank also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing.

Policy makers need to see improvement, particularly in the labor market, Michael Carey, chief economist for North America at Credit Agricole Corporate & Investment Bank in New York, wrote in a report today. “Or else additional stimulus measures are likely,” he wrote.