October, 2010

CASTON CORPORATE ADVISORY SERVICES

Write to us at info@caston.co.in

-Global Risk News-Indian Commerce-Industry Circle- The WPI Mathematics-Major Economic Indicators

Global Risk NewsGlobal Risk NewsWorld economy: Trial of strengthWill today's currency interventions hurt or help theWorld economy.

TWENTY-FIVE years ago this week, the financeministers of America, Japan, Britain, France andWest Germany met at a swanky New York hoteland agreed to push the dollar down. The "PlazaAccord" laid out a package of co-ordinated policies.The dollar duly fell, by more than 50% against the Dmark and yen by 1987. The deal is still seen as ahigh-water mark of international monetary cooperation. The appeal of intervention is now risingonce again. But this time the trend is unilateral,unco-ordinated and in one direction.

At its meeting on September 21st the FederalReserve worried aloud about uncomfortably lowinflation and made clear it was prepared to do moreto help the flagging recovery. The prospect of evenlooser monetary policy pushed the dollar downsharply: it dipped to its lowest level since March on atrade-weighted basis.

A weaker dollar means stronger currencieselsewhere--the euro hit a five-month high againstthe dollar on September 22nd. A growing number ofcountries are determined to stop their currenciesfrom rising. Japan sold about {Yen}2 trillion ($23.6billion) on September 15th, its first foray into thecurrency markets in six years, to stem a surge in theyen that had pushed its nominal rate against thedollar to its highest since 1995. It is not the only richcountry to target its exchange rate: in the 15 monthsto June, Switzerland quadrupled its foreign reserves,to $219 billion, in a bid to stop the franc from risingtoo fast.

Europe financing: EU Parliamentpasses supervision reform TheEuropean Parliament passed a package of financialservices reform measures on Sept. 22 that legislatorsare touting as a "landmark" that will "change the wayEuropean and national regulators work to ensure thestability" of the European Union financial system.

The reform package, a response to the globalfinancial crisis of the past three years, establishes aEuropean Systemic Risk Board to deal with Europewide risks. It also established three Europeansupervisory authorities to supervise banks, securitiesmarkets and insurance.

The three pan-European authorities will be at thecenter of "a tightly bound network of nationalsupervisors" to ensure a "smooth flow ofinformation on risks and consistent implementationof European financial market rules."

ADB raises Asia growth forecastto 8.2 percent: The Asian Development Bankraised its forecast for the region's economic growththis year, crediting a rapid recovery in exports evenas it warned the risk of another recession inAdvanced countries has not completely receded.

The Manila-based development bank said Tuesday itnow expects developing Asia to grow 8.2 percentthis year compared with a projection of 7.5 percentgrowth issued in April. The forecast, which doesn'tinclude Japan, covers 44 developing and newlyindustrialized nations in Asia.

"Overall, developing Asia's recovery seems to havetaken firm hold," the ADB said in the report releasedin Hong Kong. Increased consumer and businessspending as a result of government stimulus alsoplayed its part in the recovery from the financialcrisis, it said.

In predictions for individual economies, the ADBmaintained its forecast as follows:

Caston Mailinks 2

Country GrowthEstimate

China 9.6%

Hongkong 5.8%

South Korea 6.0%

Taiwan 7.7%

India 8.5%

Phillipines 6.2%

Singapore 14%

Pakistan 2.5%

Indian CommerceIndian CommerceRupee Rising Most in 15 MonthsDamped by Current-Account Gap:India : The biggest rupee rally in 15 months maybe coming to an end as a widening current accountdeficit erodes the benefits of surging inflows ofoverseas investment. The shortfall in the broadest measure of tradeand investment flows probably tripled in the secondquarter from a year ago to $12.5 billion. Thecurrency, which has climbed 4.7 percent this month,is expected to drop 1.2 percent by Dec. 31, aseparate poll shows. A wider deficit increasespressure on Reserve Bank of India GovernorDayyuri Subbarao to protect exporters and slowrupee gains by buying dollars and delaying interestrate increases. Kokusai Asset Management Co. saidany weakness may be temporary. The rupee surveysignaled the currency may resume its rally next year,gaining 5.3 percent in 2011. “The RBI has a tough task striking a balance betweeninflows, exchange rate and controlling inflation,” saidRahul Bajoria, a Singapore-based economist atBarclays. “The deficit will increase the headwindsand lead to a weakening of the rupee in the shortterm.” The rupee touched 44.835 a dollar this week,its strongest level since May 4, after gaining 6percent from an eight-month low reached on May25.

Monsoon Rainfall in India Best inThree Years as La Nina EventStrengthens India’s monsoon, the mainsource of irrigation for the nation’s 235 millionfarmers, may be the best in three years after La Ninaweather increased precipitation in August andSeptember, according to the state-run forecaster. The country received 911 millimeters of (35.9inches) of rain from June 1 to Sept. 29, comparedwith the 50-year average of 889.2 millimeters, thebest since 2007, data from the India MeteorologicalDepartment show. That’s102 percent of the long-period average And matches the agency’s forecast inJune. India’s northwest region, including the mainWheat growing states of Punjab and Haryana, andUttar Pradesh, the top sugar cane grower, received13percent more rainfall than normal, the bureausaid.

Showers in the central states, the nation’s biggestproducer of soybeans, were 4 percent above normal. Rain over the southern peninsula was 18 percentmore than normal until yesterday and the easternstates, which account for more than 70 percent ofthe nation’s tea output, had a deficit of 18 percent,data from the Forecaster show. India’s monsoonseason runs from June 1 to Sept. 30.

RBI amends bank norms for zerocoupon bonds The Reserve Bank of India(RBI) said on Wednesday that banks should notinvest in zero Coupon bonds unless the issuerprovides for the accrued interest cost in a separatefund. It said that the issuer should invest this fund inliquid assets like Government bonds.RBI noted in the circular that banks‘ investment inlong-term zero coupon bonds poses a credit risk asthe issuers are not required to pay any interest orinstallments till the maturity of bonds. It also saidthat banks should place conservative limits for their

investments in zero coupon bonds.

Govt changes FDI norms, policy toupdate every 6 months: TheGovernment has issued a second circular clarifyingvarious aspects of The existing foreign directinvestment (FDI) norms, in line with thecommitment that the policy would be updated everysix months, reports CNBC-TV18. The governmenthas cleared the air that FDI is allowed in partly paidshares and warrants. However there will be a lock-infor real estate shares from the date of receipt. In thecash and carry business, the government hasremoved trade cap. It has also permitteddownstream investment via internal accruals andremoved caps on intra-group trading. There is a bigrelief among the non banking financial companies(NBFCs) as the government has said that 100%foreign-owned companies can set up subsidiaries inIndia.

Caston Mailinks 3

Industry Circle: Industry Circle: The WPI MathematicsThe WPI Mathematics

The current series of Wholesale Prices Indexwith a base year of 1993-94 reflects thestructure of economy nearly 15 years ago. Inorder that the index adequately reflects thecurrent structure of the economy, a WorkingGroup for the revision of the index numbersfor wholesale prices in India was constituted onDecember 26, 2003 under the Chairmanship ofProf. Abhijit Sen, Member, Planning Commission.

Ever since the introduction of the WPI on aregular basis, five revisions have taken placeintroducing the new base years, viz., 1952-53,1961-62, 1970-71, 1981-82 and 1993-94.

Selection of the Base yearIn determining the base year, the WorkingGroup followed the well established criteriathat the base year chosen should have thedesired properties of being a normal year and ayear for which reliable price and other requiredData available. The Working Group alsoconsidered that the base year should be asRecent a year as possible. Keeping thesecriteria in view, the Working Group proposed2004-05 as the base year for the newseries of Wholesale Price Index.

New Series: 2004-05; Old Series: 1993-94

Caston Mailinks 4

The New Items Tally

Index Calculation:

Step I: Assigning of Price Relative to the commodity:

P1/P0 x 100

Step II: Calculation of WPI:

WPI= S (Ii x Wi) / S Wi

Where,

I = Index numbers of wholesale prices of a sub- group/group/ major group/ all commodities

S = represents the summation operation,

Ii = Index of the ith item / sub- group/ group/ major group.

Wi = Weight assigned to the ith item of sub- group/group/ major group.

All Commodities PrimaryArticles

Fuel & Power Manufactured Products

Primary &Manufactured Products

New Old New Old New Old New Old New Old

Weights(%) 100 100 20.11 22.02 14.91 14.22 64.97 63.74 24.31 26.94

Inflation:2009-10

3.6 3.8 12.7 11.0 -2.1 -2.4 1.8 3.2 14.6 15.5

July, 10 9.8 10 18.9 14.9 13.3 14.3 5.4 6.2 13.6 7.8

Major Indices Major Indices

Caston Mailinks 5

(

Indicator Current Value Previous Value

Change

Inflation 8.51 9.97IIP 7.1 17.6CRR 6.0% 6.0% No Change

Repo Rate 6.0% 5.75%91-Day T-Bill 6.27% 6.19%10 Year G-Sec Yield 8.09% 8.09% No Change

Forex Reserve 287.7 282.8Dollar 44.9 47.06Euro 61 59.5Nifty 6029 5415Nifty P/E 25.43 22.73Gold $/oz 1312 1252Silver $/oz 21.95 19.42Crude $/Barrel 78.59 74.9