Chequered run

Cement volumes grow but prices mixed

Cement majors have reported strong growth in despatch figures for October on a year -on-year basis-ACC gained 13.79 per, while the figure for Grasim rose by 8.39 per cent.

Even cumulative cement despatch figures for April-October '04 have been bouyant, in the case of Gujarat Ambuja they were up by 13 per cent aided by a 19 per cent rise in exports, while for ACC they rose 7.25 per cent.

No doubt price realisations in October '04 have improved an estimated 15 per cent year-on-year on an all-India basis, but prices in the western region have shown signs of weakness.

Prices in Gujarat, which were at around Rs 140 a bag at the end of September '04, had dropped approximately Rs 20-25 in October and it is understood that a spate of festivals such as Dassehra and Navratri, led to new construction activity slowing considerably.

As a result, even in Mumbai prices had dipped approximately Rs 3-4 per bag in October 04 vis-a-vis the month earlier on fears of diversion of supplies to the city. However, better price realisations in the north and eastern markets helped manufacturers improve their all-India realisations.

The dip in prices is, however, expected to be temporary, and domestic demand is likely to pick up in the forthcoming peak construction season. Also large cement exporters such as Gujarat Ambuja should benefit from surging demand in the Middle East, where high oil prices have fuelled a construction boom.

Equity markets

Ficci's annual global conference on the securities markets had one theme which came out loud and clear. Foreign investors are increasingly attracted to India, but are restrained to some extent by the limited liquidity in the markets, especially the fact that liquidity is centred around the top 50 or so stocks.

CalPERS, which started investing in India only this year, ranked India 15th among emerging markets in its review in 2003 thanks to an improved settlement system and higher market turnover among other things.

But factors such as transparency and market openness continued to be negatives for India. Evidently, issues such as transparency and market openness get worse as we move from large caps into the mid-cap and small-cap space.

While attracting new and long-term sources of funds into the Indian capital markets is paramount, the issue of a consistent supply of quality paper can not be ignored. In the last two years, FIIs have poured in funds worth over $12 billion, and some of this has inevitably flowed into mid-cap stocks.

But mid-caps, despite a huge rally, account for less than 10 per cent of the total market cap in India. Also, many mid-cap and small-cap stocks suffer from high family ownership and the shortage of data and research.

What the Indian market needs is more big-ticket listings such as Tata Consultancy Services and National Thermal Power Corporation. Besides, it's ironic that the markets have lost quality stocks thanks to voluntary delistings.

Like S V Prasad, CEO of Birla Sun Life Asset Management suggested, "It should be mandatory for MNC subsidiaries to list in India "" to share the wealth they create out of the country with Indian stakeholders."

Portfolio inflows into Asia Pacific seen sliding

The Institute of International Finance (IIF) last month revised downwards its projections of net portfolio inflows into the Asia Pacific region (including India) to$22.9 billion in calendar 2004, a reduction of $9 billion from the projection it made in April.

The IIF blames the usual suspects""higher interest rates in the US, and soaring crude oil prices""for the slowdown in net portfolio inflows to emerging markets.

And although it does forecast a small rebound in 2005, the worrying thing is that it bases its forecasts on Brent crude prices of $38 a barrel by the end of this year and an average of $35 a barrel in 2005.

Nevertheless, the IIF study does point out that "prospects for emerging market economies remain favourable against a backdrop where emerging market equities appear undervalued relative to other asset classes."

The study also says that current spreads on emerging market bonds are unsustainable. While the EMBI+ spread for Asia in late September was 388 basis points, the IIF says that this spread could rise to 550 to 580 basis points in the next 18 to 24 months. No wonder Asian, including Indian, companies are scrambling to issue bonds and convertibles in the overseas markets.

The recent run-up in the market means that India no longer enjoys the substantial discount to developed markets that the IIF report talks about.

The consolation is that IIF may have got its calculations wrong. After all, the report talks of net equity inflows to be only $2 billion this year. At the last count, they already added up to $5.87 billion.

With contributions from Amriteshwar Mathur and Mobis Philipose