War of words wallops markets
Parekh linked to Harshad’s missing shares
Late freedom for kerosene, gas
Cement firms plan price hike in east
Videocon power plan on hold
Coke takes battle to 200ml bottles
Export growth forecast at 3%
Foreign Exchange, Bullion, Stock Indices

Mumbai, Dec. 21: 
The money and stock markets today went into a tailspin after they heard about the recall of the high commissioner to Pakistan and reports that the border with the churlish neighbour was bristling.

The envoy’s return sent the prices of government securities tumbling and their yields soaring — the higher the price, the lower the interest rate on bonds and vice versa — and spooked the Bombay Stock Exchange (BSE) sensex into a 36.15-point loss at 3,235.49.

Prices of gilts plummeted in late-session deals as the war of words with Pakistan escalated amid growing fears that the fresh showdown could snowball into a conflict.

In one of the sharpest declines in recent times, prices of some securities shed a whopping 1.69 per cent of their value; this sent yields shooting up by almost 30 basis points.

For instance, the benchmark 11.50 per cent 2011 security, which had closed at Rs 123.60 on Thursday, slid to Rs 121.50. Similarly, the 9.85 per cent 2015 security fell to Rs 111.20 against its previous finish of Rs 112.65.

Market watchers talked about sellers going on the rampage. “There were no buyers at all. Most of the participants were liquidiating their positions as they feared more negative news over the weekend,” said an analyst.

Sanjeet Singh, senior debt market analyst at ICICI Securities, said a lot would now depend on the reactions of India and Pakistan, besides the efforts of the US to diffuse the mounting tension. If there are more grim tidings, it could leave the markets completely unhinged.”

Fortunately, investors of in stock markets, which received the report about the fresh spat at the fag end of the session, were lucky to have come out almost unscathed.

The inter-bank forex market had closed by the time the recall report was flashed across television screens, but the rupee slithered down to 47.81/82 on a scramble for dollars compared with Thursday’s finish of 47.79/80.

“The forex markets did not react today to the news as it came after the market hours. However, if there are some bad news over the weekend, then the rupee will certainly dip in Monday’s trading,” said N Subramanian, an analyst at e-Mecklai, a forex broking outfit.

Earlier in the day, tech stocks trod water on the Dalal Street, where the sensex had lost as much as 53 points at one point, but recovered to end the day at 3,235.49.

Zee Telefilms was beaten down 6.28 per cent to Rs 100.05 on a volume of over 78 lakh shares. HFCL fell 14.18 per cent to Rs 80.80 on reports that the Enforcement Directorate is probing the company’s private placement of shares. “The equity markets would have witnessed a massacre, but just escaped it by a whisker,” a broker said.

Market players hoped that the troop movements on the border and the recall of the Indian ambassador in Pakistan were only “posturing” to pressurise the Pakistani government to renounce terrorist groups on its soil.

“Lets only hope that this is only a diplomatic move and does not lead in any way to escalating conflict between the two,” a analyst from a brokerage pointed out. There were optimists like Ramesh Damani, a prominent BSE broker, who still hoped Santa Claus would visit Dalal Street, and lift stocks from the trough.

The markets now hope relations between the two neighbours would be calmer by Monday, or a reassurance that they are not hurtling towards a military conflict.


Mumbai, Dec. 21: 
The Central Bureau of Investigation (CBI) today threw an interesting twist to the Mystery of the Missing Shares by claiming that there was a direct link between the two biggest rogue traders on the Indian stock markets — Harshad Mehta and Ketan Parekh.

In a remand application filed before the special court seeking extension of the judicial custody of Harshad Mehta and his brothers Sudhir and Ashwin, the CBI said Parekh and Hiten Dalal, another discredited stockbroker, had allegedly disposed of some of the shares held by Harshad Mehta group that the Big Bull claimed were stolen or had gone missing after the securities scam of 1992. Parekh was the bull operator who ramped up shares on the bourses early this year using funds illegally obtained from Madhavpura Cooperative Bank before the stock market collapse in March.

The court remanded Harshad Mehta and his brothers to judicial custody till January 14 on the charge of illegally selling in the market the shares that had already been attached by the court receiver. According to CBI, Sameer Jani and Manish Shah, who were believed to have disposed of the shares belonging to the Harshad Mehta group, have been traced and questioned.

Their statements have been recorded and steps taken to procure evidence from police records to establish their involvement in the crime.


New Delhi, Dec. 21: 
The government today decided to retain price controls on kerosene and cooking gas for another five years and phase out the huge subsidies being paid for these two products over this period. However, the prices of all other petro-products will be freed by April next year as planned.

A meeting between finance minister Yashwant Sinha and petroleum minister Ram Naik here today took this decision keeping in view that consumers would be hit hard if prices of these two products jumped up suddenly, after the market is freed.

It also decided that petroleum companies would float seven-year maturity bonds to cover up to 80 per cent of the oil pool deficit, which is today estimated at about Rs 12,000 crore.

The bonds, which would be tradeable in market, would carry a coupon rate equivalent of interest rate on similar seven-year maturity government security.

This decision came after the finance ministry remained adamant that it could not give away any huge concessions in customs and excise duties on petro-products to help neutralise the deficit in the oil pool account, a notional account which is used to cross subsidise certain petro-goods like cooking gas and kerosene, with excess profits from sale of others like petrol and air turbine fuel.

The first tranche of these bonds will be issued around the same time as next year’s budget. The government also decided to clear the remaining deficit through another tranche of bonds which will be issued later, after the Comptroller and Auditor General conducts an audit into the oil pool account.

Naik, however, did not specify the subsidy that the government would continue to pay on kerosene and cooking gas after April next year. Currently kerosene for public distribution system carries a subsidy of 42 per cent, while the subsidy on domestic cooking gas is 40 per cent.

Earlier, the government had planned to bring this down to 33 per cent for kerosene and 15 per cent for cooking gas. If this had been done it would have meant a price hike of Rs 90 a cylinder of cooking gas and Rs 1.25 a litre of kerosene.

Naik has made it very clear that such drastic pruning of subsidies would not be politically feasible. Hence, the decision to phase out subsidies on these two products over the next five years. Subsidies on these two products alone are estimated to account for over Rs 12,000 crore a year.

After April this year, subsidies on these two fuels would be paid out of the general budget directly to the firms selling them. Only PSUs would “be entrusted with this task of distributing subsidised products to targeted people.”

Strategic reserve

The government said today that it will build strategic reserves of crude oil and petroleum products, on the lines of ones maintained in the US, to attain oil security. “Oil security is an important aspect and we would like to build strategic reserves of crude oil and product to achieve that,” Naik said.

Naik said the oil security situation was discussed with Sinha today and similar talks would be held with the defence ministry.


Calcutta, Dec. 21: 
Top executives of cement companies met here today for discussing strategies to salvage the situation in the eastern region, where crashing prices have left manufacturers with cash losses.

Prices in Calcutta are still at a two-year low of around Rs 125 per 50-kg bag, despite several attempts by the manufacturers in the recent past to suck out excess supply and prop up prices. Prices fell by about Rs 15 per 50-kg bag in October-November.

However, indications are prices will increase over the next three weeks.

Cement manufacturers today decided to make yet another attempt to increase prices.

While the previous two attempts have met with failure, success this time will mean that prices of 50 kg bags may rise by Rs 25 to a shade over Rs 150 by the first week of January.

Dealers, however, are keeping their fingers crossed. “The glut in the market continues and this attempt too may not succeed,” leading city dealers said.

The companies have sought the dealers’ co-operation in increasing prices.

Larsen & Toubro managing director A.M. Naik met leading dealers here today and discussed the manufacturers’ problems with them.

Announcing the decision taken by cement manufacturers today, Naik said prices will be increased in three stages. In the first stage, which is being implemented immediately, prices will go up by Rs 5, and then by Rs 10 each in two stages.

In order to increase prices, the companies are expected to squeeze supply over the next couple of weeks.

Dealers are still not convinced that the agreement to increase prices will survive the pressure to clear present stocks.

“Any undercutting will lead to a chain reaction and prices will crash again,” dealers said, citing past experiences.

Often, a multinational with a strong base in the east has been made the scapegoat, but there are a number of Indian companies too this time that have built up huge stocks.

Lafarge officials have gone on record saying that efforts to increase prices in India were unlikely to succeed as any spurt in demand could easily be met by increase in supply.

The country’s total production capacity is about 20 per higher than consumption.


Mumbai, Dec. 21: 
Videocon group company Videocon Power, which is promoting the 1,050 MW coal-based power plant in Tamil Nadu, has decided to defer investment in the project till several problems surrounding it are sorted out.

The company is now pinning its hopes on the new state government to step in to enable the project see the light of the day. Industry circles aver that one of the crucial issues surrounding the project is the issue of providing escrow cover.

Incidentally, Tamil Nadu is one of the few states apart from Gujarat and Andhra Pradesh, which has failed to provide escrow cover to various projects.

Hinting that investment in the project has been put on cold storage, albeit for the short term, Rajkumar Dhoot, who heads the group’s ambitious foray into the power sector, said the company is going slow on the project as some issues need to be sorted out first. He said the project was consciously being delayed by the company due to several differences with the state power board.

He added that concrete developments in the project may be seen after six months. “However, we are confident that the project will go through at a later stage,” Dhoot said.

The move comes amidst reports that the financial institutions are considering a move to review funding of many power projects, including the Videocon venture.

Initially, the project was scheduled to comprise three partners—Videocon, National Power of the UK and ABB. National Power was then tipped to pick up around 36 per cent, the Videocon group 38 per cent, while ABB was set to pick up 26 per cent equity in the venture.

However, the equity structure of the project subsequently changed as ABB indicated its decision to pull out from the project. Following ABB’s exit, National Power’s equity contribution increased to 49 per cent, with the Videocon group taking up the rest.

But trouble soon began for the Dhoots with allegations surfacing that the project’s tariffs were higher than those of other projects. Another source of concern was the delay in achieving financial closure for the project.

Videocon Power was then forced to revise the project costs, but the new costs were disputed by the Tamil Nadu Electricity Board (TNEB).

Subsequently, the TNEB, its sole buyer, cancelled the escrow cover, on the grounds that Videocon had delayed the financial closure of the project.

Videocon challenged this in the Madras high court, which stayed its writ petition, and added that TNEB could not allocate escrow cover to any other project in the state.

The project received yet another jolt this year with National Power pulling out of the venture, leaving many industry circles to speculate about the future of this venture.


New Delhi, Dec. 21: 
“After going eyeball to eyeball, the other guy just blinked.” That was Pepsi’s greatest put-down ad line when Coke committed its most notorious blunder back in 1985 by introducing a reformulated brand called New Coke to counter the growing popularity of Pepsi in the US. Three months later, in an equally sudden turnaround in the face of a thumbs down from US consumers, it reintroduced its famous cola formula and won back its market share.

In India, Coke is preparing to do another flip-flop. After changing the rules of the game in the soft drinks business by launching the now ubiquitous 300 ml bottle when it returned to the country in 1993, the cola giant is preparing to uncork a new offering — a 200 ml bottle for all its brands across the country.

Coke is hoping that the throwback to the 200 ml bottle — which was the bottle size that cola drinkers in the country were used to till Pepsi entered the scene in 1989 with a 250 ml bottle — will bring the fizz back to the flat soft drinks market.

Both Coke and Pepsi still market some of their soft drinks in 200 ml bottles — but these are restricted to very small markets in the hinterland. Coke now believes it is time to put the 200 ml bottle back on the national stage.

Next year, Coke will be offering its 200 ml glass bottle at a price between Rs 6 and 7 and hope that volumes will swell.

“We expect to give a boost to carbonated soft drinks growth by pushing the 200 ml pack sizes in a big way,” says Sanjiv Gupta, senior vice president, Coca Cola India.

According to a company spokesperson, the small pack will be introduced for all the brands and all flavours of carbonated drinks in the Coca Cola portfolio — Coke, Sprite, Fanta, Thums Up and Limca.

Right now, Coke markets only some brands in its product portfolio in the 200 ml pack and that, too, in select markets including coastal Andhra, parts of Tamil Nadu and Punjab.

In certain regional markets, Coke also markets smaller pack sizes from the Schweppes portfolio — Canada Dry, Crush, and Sports Cola — at Rs 5.

Gupta says the company intends to aggressively push this strategy. At the same time, there are no heartaches when pulling the plug on brands that haven’t worked: so, Fanta watermelon, which didn’t catch on in the market, is being jettisoned.

Pepsi, on the other hand, is not terribly keen on the 200 ml pack size because it feels that the returns are higher on the 300 ml bottle priced at Rs 10 rather than the 200 ml bottles priced at Rs 7. A 200 ml bottle priced at Rs 6 — a price point that Coke is considering — does not make money at all, says a Pepsi spokesperson.

“After a bad year, the bottlers will not agree to pack in more 200 ml bottles in which production costs are almost identical but the returns are less. The 200 ml bottle can only work in select markets like the rural ones,” says the Pepsi spokesperson.

This thinking is based on the assumption that a consumer won’t mind stumping up another Rs 3 for a 300 ml bottle rather than settle for a 200 ml pack size priced at Rs 7.

“We will not push a pack which eats into our mainstay — the 300 ml pack size,” says the Pepsi representative.

Let’s see who blinks this time round.


New Delhi, Dec. 21: 
The government today scaled down the export growth target during the current fiscal drastically to 3 per cent, from the earlier projection of 12 per cent on account of the global slowdown and the crippling effects of the September 11 terrorist attacks in New York.

The commerce ministry revised the target after taking into account the poor export showing in the last few months, which recorded a negative growth, particularly after the terrorist attacks on the US. “The terrorist attacks disrupted the supply lines and depressed consumer sentiments in the developed markets, particularly in the US, EU and Japan, which account for 45 per cent of India’s exports,” an official statement said.



Foreign Exchange

US $1	Rs. 47.82	HK $1	Rs.  6.05*
UK £1	Rs. 69.35	SW Fr 1	Rs. 28.95*
Euro	Rs. 42.91	Sing $1	Rs. 25.60*
Yen 100	Rs. 36.93	Aus $1	Rs. 23.90*
*SBI TC buying rates; others are forex market closing rates


Calcutta			Bombay

Gold Std (10gm)	Rs. 4660	Gold Std (10 gm)Rs. 4600
Gold 22 carat	Rs. 4400	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7525	Silver (Kg)	Rs. 7585
Silver portion	Rs. 7625	Silver portion	NA

Stock Indices

Sensex		3235.49		-36.15
BSE-100		1548.58		-18.69
S&P CNX Nifty	1050.85		-11.15
Calcutta	 107.86		- 0.95
Skindia GDR	 512.88		- 4.15

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