1. January 2012, Volume: 35ISSUE VOLUME Investeurs Chronicles News In FocusCover StoryWanted Prudence: Food Security News on Industry and Not in Good Company Emerging MarketsBill 2011 Open Forum.Stats Watch ....... Commodity Market: Movers Capital Growth and Shakers of 2012

2. Call Rates as on 30 th December 2011 7.00% - 9.60% Figure FactsForexForward Rates against INR as on 30thDecember, 2011 Spot Rate 1 mth3 mth6 mthUS 53.28 53.6754.21 54.96Euro 68.93 69.4470.21 71.29 4,613.Sterling 82.23 82.8083.59 84.6815,379 10Yen68.7769.3 70.1 71.23.34Swiss56.70 57.1557.82 58.784,624.Franc15,454.9230Source: Hindu BusinessLineLibor RatesSensex NiftyLibor % 1 mth3 mth 6 mth 12 mthUS 0.29 0.580.80 1.12Euro 0.96 1.291.56 1.91Sterling 0.77 1.081.37 1.87Yen0.14 0.190.33 0.55 27592Swiss Franc0.03 0.050.09 0.32Forward Cover52828 51043 27100 1 mth 3 mth 6 mthUS 8.91% 7.08% 6.39%Euro 9.00% 7.53% 6.94%Sterling 8.43% 6.71% 6.04%Yen9.38% 7.84% 7.25%Gold (10 gm)Silver (1 Kg)Swiss Franc9.66% 8.01% 7.44%As on 30 th December, 2011 Source: Hindu BusinessLineCommodities53.28CommoditiesUnit (1000kg) 107.95Aluminum 105250Copper 396450 52.80Zinc 95750 104.10Steel33400As on 30 th December2011Crude Oil ($/barrel)Dollar Data from18th December 2011 to 30thDecember 2011 3. Stats WatchYEAR InFocusNot in a Good CompanyIndian equity markets will end 2011 as one of worst performers among global peers, afterbeing on top for the major part of the decade. The 30-scrip BSE Sensex, which had beensurpassing most other widely-tracked global indices for about a decade, suffered a 26% fallthis year. Such a dismal performance was on account of heavy outflows from FIIs and rupeedepreciation.A steep fall for Sensex started from August this year when the index was around 18,300. It haslost nearly 18% since then.During the year, Chinas Shanghai Composite Index fell 21%, South Koreas Kospi lost 10% andBrazils Bovespa declined 10%. In the past ten years, while Sensex outperformed Dow eighttimes, Hong-Kongs Hang Seng fared better than the US index six times and the ChineseShanghai Composite beat the US benchmark three times.Gloss Voting StockShares in a company that entitle the shareholder to a single vote in corporate elections for each share of stock held. 4. Cover StoryThe Indian government on 22nd December 2011 tabled in the LokSabha a landmark bill that seeks to provide cheaper foodgrain to over half of Indias 1.2 billion population. Itaims to ensure that people live a life with dignity.It is billed as a decisive step in Indias fight against hunger and malnutrition. It is unacceptable that the second fastest growing economy in the world has the largest populationof hungry and malnourished. Hunger and malnutrition are measured primarily by three parameters: inadequate access to food, stunted growth in children and infant mortality.Intent of the bill is unquestionably fastidious but is it prudent as well? Will this Act serve to reduce hunger and malnutrition to much lower levels within a short span of time?HistoryAttempts on the similar line have been made in past. In 1973, Indira Gandhihad decided to nationalize the wholesale trade in wheat at the high noon of her GaribiHatao days.Stated purpose was to do away with the vile trader, which in turn was supposed to bring food inflation to heel. However, the outcome was poles apart from the one anticipated.The grain monopoly of the state starved private markets. Food prices rose even further. Evil hoarders were blamed for the effects of bad policy. Cut to 1989. V.P. Singhannounced a farm loan waiver at a time when the government budget was already under immense strain. Two Prime Ministers took similar decisions and faced similar outcome:policy failure.Infact, it is said that the road to the 1990 crisis was being paved by men with good intentions!Guidelines of billSimilar good intentions seem to have resurfaced. The current bill seeks to provide a statutory right to highly-subsidized food for 75 per cent of the rural population, with 46 percent in the priority category, or below the poverty line (BPL); and to 50 per cent of urban inhabitants, including 28 per cent in the priority category. For the identification ofpriority and general households, the Centre is likely to prescribe guidelines. This will include exclusion criteria also. On the basis of these guidelines, State Governments willidentify the households. The list of such households will be displayed in public domain. 5. The proposed Bill will have special provisions for pregnant women. Any unemployed pregnant woman will get maternity benefits of Rs 1,000 per month for a period of sixmonths. Not only this, she will also get rations or nutritious and freshly cooked meals free of charge during pregnancy and six months thereafter. This food will beprovided by local anganwadis.The Bill also talks about nutritious take home rations and/or freshly cooked meals throughout the year through the local anganwadi for all children in the age group of 0-3years. All children in the age group of 3-6 years will get freshly cooked meals in the local anganwadi for at least 300 days in a year.Vote pull and cash pushGuidelines of the Food Security Bill present it as more of a political stunt with little or no regard to the economics involved. Not getting into the political bandwidth of thebill, lets dwell on the economic and delivery considerations of the same.First, the money. The projected subsidy bill is Rs 1,00,000 crore a year which will go up every year depending on the increase in the Minimum Support Prices. A minimumincrease of 12 to 15 per cent per year should be factored in. This Act cannot deliver without cash being made available in time. This implies that bold policy decisions haveto be taken to reduce subsidies in other areas and move more projects to PPP mode.Second, the grain. Procuring 61 to 62 million tonnes of food grain means adding 10 to 12 million tonnes to current procurement levels. The traditional strong states ofPunjab, Haryana, Andhra and the new ones, Chhattisgarh and Orissa, cannot provide more. Uttar Pradesh, Bihar and West Bengal will have to step in. Are they ready?Another challenge over here is high dependence of Indian agriculture on monsoon. Cost of grain procurement will soar in a drought year when India would be forced toturn to potentially costly imports, and have the unintended consequence of adding to inflation.Third, impact on private trade. In a production scenario of about 100 million tonnes of rice and about 84 million tonnes of wheat, with about 65 per cent of productioncoming into the market, procurement of 62 million tonnes will not leave much space for private trade. Squeezing the privatetrade is bound to push up food inflation andthe government will be forced to release food grain from public stocks at a lower price, thereby starting a new spiral for additional procurement.Fourth, delivery. The biggest challenge in the implementation of the Act will be proper identification of beneficiaries and effective delivery. Major surgical interventionswill be required to make the system work. This will include allowing innovations at the state government level and giving panchayats more powers and responsibility,including the power to appoint fair price shopkeepers and procuring foodgrain locally in a largely decentralized mode.Fifth, ensuring outcomes. What is the guarantee that after spending Rs 6, 00,000 crore and after five years, India is not at the same level as today with 240 million hungryand malnourished people? To prevent this from happening, we need to put a big premium on performance. Performance will have to be measured on the impact in eachregion (on the same parameters as the hunger index) and non-performers must be penalised without exception. 6. OptionsSupporters of the bill argue that despite the heavy burden on the state coffers, a thought should be given to the question whether the state can afford to leave a vast majorityof its people in hunger, starvation and malnutrition even so many years after Independence? Despite a growth rate of 8.6 per cent, now down to seven per cent, India has notbeen able to bring down figures of anemia, hunger and malnutrition among its people. We are still a nation in which one out of two children is malnourished and two out ofthree women are anemic, and one out of three adults is malnourished. Further, the bill will ensure that the grain will not rot in warehouses, because it is a legal duty todistribute it to the people. Despite the support, there is a general feeling that the bill is difficult to apply because of the criteria of selection outlined in the bill. Targetedcoverage by food schemes in the past years has always shown high exclusion errors.Skeptism by those in favor and against the food security bill points to the fact that the government is missing the point of the bill: food security to every Indian. More than abill, what is required to assure every Indian food security is to make India a major source of the additional food the world demands, to invest in agricultural growth: inharnessing water for scientific irrigation, in extension of know-how as well as in R&D, in rural roads that provide vital physical linkage to markets, in electronic spotexchanges, in scientific storage and efficient transport logistics, in developing as close a link as possible between the farmer and the first stage of food processing and inproviding proper regulation of financial markets in agricultural commodities, futures, derivatives and insurance. Enhancing earning power through farm growth is the rightstrategy, supplemented with cash transfers to the poor.Writing a food security law that is so rigid amounts to killing the concept entirely, and expensively. 7. Govt to ask Sterlite for formal plan for buying 49%NTPC signs purchase pact with M.P. for 50 MW residual stake in Balcosolar power The Government will shortly write to Sterlite, a Vedanta NTPC Ltd has signed a power purchase agreement (PPA) Group company, asking it to submit a formal plan to buywith MP Tradeco in Bhopal for supply of power from 50 the remainingGovernmentstake in Balco. The MW solar PV (photovoltaic) power plant to be set up atMoodysupgrades threeIndian debt Government went for a strategic sale of Balcos equity toRajgarh in MadhyaPradesh. Expected to beinstruments Sterlite in 2001. This move is being initiated at a time commissioned by the year 2013, the 50-MW solar powerMoodys upgrade follows a positive rating action by when the Government is finding it hard to realize thefrom Rajgarh Solar PV shall be bundled with unallocatedDBRS in June 2011 when it upped the rating on long- targeted Rs 40,000 crore from disinvestment of state-power from upcoming coal-based stations of NTPC byterm foreign and local currency debt from negative to owned enterprises. Government of India, according to a statement fromstable. The agency has upgraded the rating on long-NTPC.term Government bonds denominated in domestic Chennai Port rejects Mundras Rs 3,700-cr bidcurrency and long-term country ceiling on foreign Chennai Port Trust (CPT) has rejected a bid by Mundracurrency bank deposits from Ba1 to one notch Port and Special Economic Zone (MPSEZ) for its Rshigher at Baa3 (from speculative to investment 3,700-crore mega container terminal project in thisgrade). The last time Moodys upgraded any Indian metropolis. Reason: the revenue share offer of five perlong-termsovereign debt instrumentfrom cent was too low, according to CPT. The port isspeculative to investment grade was in 2004. planning a re-bid for the deepwater container terminal, the countrys first, to give another opportunity for thoseInsuranceRegulatoryandDevelopment companies which participated in the projects request forAuthorityfinally junksthird-partymotor qualification stage, according to a senior CPT official.insurance poolThe Insurance RegulatoryandDevelopment Govt plans to borrow Rs 40,000 cr more in FY12Authority has dismantled the four-year-old third The government is looking at borrowing around Rsparty motor insurance pool blamed by private 40,000 crore more to make up for the shortfall ininsurers for their losses, but is replacing it with a revenue receipts and poor disinvestment realization insmaller one that may force state-run companies to the current fiscal. If approved, it would be the secondimprove efficiency. The third-party pool, introduced additional borrowing than that originally announced inin 2007, has been criticized by private insurers saying the Budget 2011-12. As per the revised target, grossthey are forced to bear the burden for sloppy due market borrowing for the current fiscal is pegged at Rsdiligence done by public sector general insurers. 4.7 lakh crore. 8. Emerging Markets Russia: Real Estate to Reach $7.5Bln Recordtrillion budget for goods and services in 2011 that should With deals worth tens and even hundreds of millionshave been procured through fair and transparent tenders,South Africa: SAs trade account deficit of dollars, real estate buyers have poured about $7.5commission chief NawirMessi said.narrowsbillion into the Russian market this year, a post-SovietSouth Africas trade account recorded a deficit of record. Though the market is unlikely to repeat such PH foreign debt inches up at end-SeptemberR8.0bn in November compared with a R9.6bna feat in 2012, it will continue to be an active market with THE Philippines outstanding external debt went up in theshortfall in October, the South African Revenuebillions of dollars in deals, both analysts and theirfirst nine months of the year owing to foreign exchangeService said. Exports rose by 11.9% month-on-month numbers suggest. It was quite an uptick: In 2009, real revaluation adjustments, the BangkoSentralngPilipinasto R68.5bn in November, while imports increased by estate investments totaled just $2.3 billion, and in 2010, (BSP) said.BSP Governor AmandoTetangco Jr. said the8.1% to R76.5bn. The wider trade shortfall willthey were about $4 billion, Cushman has estimated. Those countrys outstanding external obligations hit $62.4weigh on the current account, which widened to figures compare with $5.8 billion in 2008, the year that billion in the first three quarters, up 1.6 percent from3.8% of GDP in the third quarter of 2011 from a 2.9% the crisis began.$61.4 billion in the first half. The central bank said theshortfall inthesecond quarter.transfer of $504-million worth of Philippine debt papersThe trade balance is also likely to be hit by lowerBrazil: US Opens Market for Brazilian Ethanolfrom resident to non-resident investors also widened theexports to Europe, South Africas largest tradingAs the worlds second largest ethanol producer (after thedebt level.partner. U.S.), Brazil slipped into a rather enviable position on Friday when U.S. Congress dropped its ethanol importSouth Africa: Credit growth quickens to 6.22%tariffs. According to industry experts, the long awaitedGrowth in credit demand by South Africas privatemove could see Brazilian ethanol exports increase bysector hit 6.22% year-on-year (y/y) in Novembertenfold over the next decade, due to demand for Brazilsfrom a 5.52% rise in October, central bank datasugarcane-based ethanol that Brazil claims is cheaper,showed. However, in the broadly defined M3 cleaner and more efficient.measure of money supply growth slowed slightly to7.23% y/y compared with 7.26% in October.Indonesia: KPPU: State contracts inflated by Rp 240 trillion in 2011 The Business Competition Supervisory Commission (KPPU) says the state lost Rp 240 trillion (US$26.16 billion) in 2011 due to inflated contracts for goods and services.The state allocated Rp 800 trillion of its Rp 1,435 9. Open ForumCommodity markets: Movers & shakers of 2012The Mayans believed the world would end in 2012. Commodity markets lost their will to live in 2011. Caught in the pincer of economic stress and political uncertainty,everyone in the business is ending the year with shrunken plans and diminished faith in market fundamentals. The big question now is what new forces 2012 will unleash. Agriculture:In the grains and cash crop market, farmers call the shots by choosing what to plant. The year 2011 was a disappointing one for them. In crop after crop, market prices plunged to one-year lows and barely covered cost of production as ample supply and a working capital crunch dissuaded traders and processors from stocking large quantities. The US dollar climbed to an 11-month high and further pushed down prices. As a result, 2012 will feel the impact of this disappointment. Farmers will plant fewer acres of underperformers such as cotton, soyabean, wheat, sugarcane and potato. With less money in hand, they will reduce sprays of expensive chemical inputs and fertilisers. The combination of fewer acres and lower yields will tighten supply.Weather will remain the wild card. La Nina La Nina, a cooling of the Pacific Ocean that can affect weather around the world, is expected to strengthen gradually into 2012,according to the US Climate Prediction Center. Last years La Nina was a contributor to record flooding in Australia, the persistent Texas drought and an above-averageAtlantic hurricane season.Though supply may reduce, demand will grow in step with population. Despite record global cereal production, FAO says 33 countries urgently need food aid. If Chinaimports more sugar, cotton, palm oil, soyabean and corn to rebuild inventories and compensate for its own decline in production, agri-commodity markets could catch fireagain in 2012. Does that mean more profits for traders and processors? No. Governments will use every trick in the book to keep food inflation in check. Metals: In 2012, metals may be the most affected by political change in the worlds major economies. To emerge from the dumps, metals need a clear signal of demand revival. They wont receive one. Instead, presidential elections in the US, France and Russia and the dual transition of power at the top of Chinas Communist Party will add to the uncertainty. Elections make it harder for political leaders to find compromises or push through tough policy choices. Resource nationalism will gain strength as more economies in Latin America, south-east Asia and Africa ringfence raw materials. 10. Metal companies will be hit by the double whammy of dwindling demand and dwindling credit. Plans for new mines and factories will get postponed, tightening supply. Theebbs and flows of demand and GDP growth in top-buyer China drove metals to despair in 2011. In 2012, election results will keep them on tenterhooks. Prices will movesideways as tight supplies will offset economic concerns and the strong dollar. Energy: Oils physical demand and supply are well-matched. The projected increase in consumption of one million barrels a day can be easily met by existing wells. But the market shall be far from stable. The biggest potential disruption could come from the Middle East. After the fall of several veteran Western-backed Arab rulers, regional powers such as Turkey, Saudi Arabia and an isolated Iran appear increasingly in open confrontation. Irans Fars news agency reported that Irans military will hold drills to close the Strait of Hormuz, where about a sixth of global crude supplies flow through each day. Some analysts say 2012 could be the year when Tehrans enemies make a military strike that could spark retaliation against oil supplies in the Gulf. Gold:In 2011, gold was the financial worlds life jacket. After struggling to move past $1,400 till March, it spiked in September to nearly $1,900 per ounce, essentially having tripled in price since 2007. In 2012, the combination of worsening economic, political and financial risk will make it even more precious. There will be continued safe-haven demand from Europes debt crisis, uncertainty about the Chinese economy and extraordinarily easy G7 monetary policies. Temporary selloffs will not change the overall demand for gold as the final shelter for the market weary. Relatively squeezed supplies next year mean it is too early to give up on the overall commodities rally. But ordinary people around the world are coping with the hardships from slowing economies, rising cost of living and fewer jobs.The year 2012 may also bring greater social unrest, trade disruptions and political one-upmanship. For commodity markets, that means another year of nerves on theedge. 11. About Investeurs Consulting P. Limited Investeurs Consulting Pvt. 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