1. December 2011, Volume: 33ISSUEVOLUMEInvesteursChroniclesNews In Focus Cover Story Perfect Storm: Volatility in News on Industry and All routes to India:Emerging Markets commodity pricesworlds top recipients of remittancesOpen Forum.Stats Watch ....... OutlookIs depreciation the new normal?Gross DomesticRubber Products Quartile Estimate

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Call Rates as on 3rd December 2011 6.90% - 8.50%Figure FactsForexForward Rates against INR as on 3rd December, 2011 Spot Rate 1 mth3 mth 6 mthUS 51.31 51.62 52.0152.55 5,050.Euro 69.18 69.63 70.1870.9516,846 15Sterling 80.48 80.95 81.5182.28 .83Yen65.89 66.37 66.9467.7815,946 4,778.Swiss55.95 56.35 56.8457.57 .10Franc35Source: Hindu BusinessLineLibor RatesLibor % 1 mth 3 mth6 mth 12 mth SensexNiftyUS 0.270.52 0.74 1.06Euro 1.131.40 1.64 2.00Sterling 0.741.03 1.33 1.82Yen0.140.19 0.33 0.55Swiss Franc0.030.05 0.09 0.3228,948 55,702 28,688Forward Cover .00.00.00 1 mth 3 mth 6 mthUS 7.35% 5.53% 4.90%54,415Euro 7.91% 5.86% 5.19% .00Sterling 7.11% 5.19% 4.54%Yen8.86% 6.46% 5.82%Swiss Franc8.70% 6.45% 5.87%As on 3 rd December, 2011 Source: Hindu BusinessLine Gold (10 gm) Silver (1 Kg)CommoditiesAluminum (1000 kg) 102100109.94Copper (1000 Kg) 409750 52.16Zinc (1000 kg) 100350Steel (1000kg) 31600107.00As on 3 rd December2011 51.21 Crude Oil ($/barrel) Dollar Data from21st November 2011 to 3rd December 2011 3. Stats WatchYEAROutlook -Rubber RubberThe Association of Natural Rubber Producing Countries (ANRPC), whose members account for92 per cent of global rubber output and exports, pegged output at 10.023 million tons in 2011,up 6.6 per cent from 9.490 million tons in 2010. According to ANRPC in 2011 world naturalrubber production is estimated to reach between 11.55 million tons and 11.66 million tonswhile world demand for natural rubber would be 11.40 million tons.Compared to the previous year (2010), when world natural rubber production could not meetmarket demand so there was a shortage of 400,000 tons, causing the rubber price to rise toUS$4.95 per kg, current scenario is quite optimistic. In the coming year global natural rubberoutput could rise 3.6 percent to 10.388 million tons, but growth is expected to be slower thanin 2011 as falling prices affect yield. The current phase of low rubber prices has reduced theenthusiasm among the dominant smallholders for continuing the good agricultural practices(stimulated harvesting or rain guarded tapping) which are necessary for optimizing the yield.The price of Thai RSS3 tyre grade, often considered the benchmark physical price, has halvedsince hitting a lifetime high at US$6.40 (RM20.40) a kg in February 2011 on fears Europesdebt crisis could hurt demand, and after main consumer China recently sought torenegotiate prices. Overall, rubber prices had dropped 37% in the current year.Indeed, the crisis in the US and Europe has affected the price of rubber. Theres a slowerGlossArms length Transactiondemand in the crisis-hit countries. But on the other hand, theres a jump in demand fromemerging market including India and China, so theres no way for the rubber price to plungefreely. Rubber price of $4 per kg is considered quite healthy as the breakeven point forfarmers is at $3.5 per kg. It is expected that rubber price in 2012 to range between $4-4.5 perA business deal between unrelated persons or organizations in whichkg on continuing strong demand from India and China. there is no conflict of interest for either party. 4. Perfect Storm: Volatility inCover Story commodity pricesWhen commodity prices slumped in the aftermath of the global financial crisis in 2008,many market observers were quick to call an end to a sustained five-year commodityprice bull market.But as the post-crisis economic recovery gathers pace, prices have rebounded. Since theend of last year, agricultural, energy and industrial commodity prices have surged, inmany cases bringing prices back to or above pre-crisis levels.Talk is back of a super-cycle that will sustain commodity prices at historically high levelsfor years to come, thanks to rising demand and limited scope for an increase in supplyfor a number of key commodities. Brent crude prices broke through the $100 a barrelbarrier in early February, copper prices hit a record high in mid-February, while theUNs food price index rose to an all-time high in February.Has the global economy entered an era of persistently high, volatile commodity prices?Atleast, market sentiments of late suggest so. During the past eight years alone, theyhave undone the decline of the previous century, rising to levels not seen since the early1900s. In addition, volatility is now greater than at any time since the oil-shocked 1970sbecause commodity prices increasingly move in lockstep.Going forward, a trend reversal is not expected. Infact, world is bracing itself for higherdemand and volatility in commodities. Demand for energy, food, metals, and watershould rise inexorably as three billion new middle-class consumers emerge in the nexttwo decades. Led by China and India, consumption is set to rise in multiple segments,comprising food, infrastructure and luxury goods. To cite an example, in India, calorieintake per person is expected to rise by 20 percent during the period till 2030, while percapita meat consumption in China could increase by 60 percent, to 80 kilograms (176pounds) a year. 5. Repeat of the feat The prominent of these factors being the growth of emerging markets such as Brazil,Such dramatic growth in demand for commodities actually isnt unusual. Similar Russia, India and China. As the populations in those countries improve their standard offactors were at play throughout the 20th century as the planets population tripledliving, they consume more meat, coffee and other staples of a middle-class diet. Thisand demand for various resources jumped anywhere from 600 to 2,000 percent.shift in eating habit is further evident by the increase in consumption of processed andYet, burgeoning demand at that time was met through improvements injunk food. Till a decade back, extensive use of agri commodities for end products, likeexploration, extraction, and cultivation techniques which kept supply ahead of chips, pizza base, and burger was unheard of. But with increased globalization, foodever-increasing global needs. Infact, this ability to access cheaper resources habits of the developing countries have been influenced by that of the developedprovided the groundwork for a 20 fold expansion f the world economy then.countries at a higher level. That increases demand for the commodities required to produce those goods.However, current scenario is different. Firstly, world has become progressivelyaware and concerned about the potential climatic impact of carbon emissionsThe other prominent factor, but marked by controversy is speculative trading in theassociated with surging resource use. Secondly, we have almost hit the point commodity futures markets by hedge funds and other investors. Of late, commoditieswhere supply of commodities has become inelastic. Long-term marginal costs are have become a standard part of the portfolios of many hedge funds, which use them asincreasing for many resources as depletion rates accelerate and new investmentsa way to protect themselves against inflation. If hedge funds are betting on inflation,are made in more complex, less productive locations. theyll shift more money into commodities, which move the market higher. If theyre selling, theyll drive prices down.Third, the linkages among resources are becoming increasingly important.Consider, for example, the potential ripple effects of water shortfalls at a timeIdentifying how much of the recent volatility is being caused by speculators iswhen roughly 70 percent of all water is consumed by agriculture and 12 percent impossible, but they are widely believed to be at least partially responsible for theby energy production. In Uganda, water shortages have led to escalating energy recent run-up in commodity prices.prices, which led to the use of more wood fuels, which led to deforestation and soil In recent months, for example, as investors concerns over Europes debt woesdegradation that threatened the food supply. mounted, many hedge funds became more worried about deflation. This caused them toIt now seems that the 200809 trough was merely a temporary blip in a larger liquidate their commodity positions, which caused grain prices to plummet.commodities super-cycle which still has plenty left to run with a predicted Current Scenario and the road aheadcontinued strong demand, major uncertainty surrounding supply and future spare Although, ground seem to be set for a super cycle in commodity market, yet, acapacity of a number of key commodities, most notably oil, copper and corn. combination of factors such as eurozone debt worries and the looming likelihood ofContributing Factors failure from the U.S. Congressional super committee have pulled down the commoditySurging development in emerging markets, reawakening demand in North prices in the last couple of months.America, low inventories and production difficulties in some areas have combined Energy prices in October 2011 edged down 1%. Non-energy prices sharply extendedto create a sudden, dramatic rise in the global cost of key commodities used in the their decline by 7.6%; food prices fell by 5.4%; beverages down by 7.3%; raw materialsmanufacture of a variety of products. prices dropped by 6.3%; metals plummeted by 11.2%; fertilizers remained unchanged. 6. Further, the International Monetary Fund has downgraded its outlook for commodity prices, citing slower global economic growth. In its biannual World Economic Outlookreport, the IMF has forecasted global economic growth for 2011 and 2012 to 4.0 per cent, down 0.3 and 0.5 percentage points respectively, from its June projection. The lower-than-expected economic growth is in part the result of high oil and commodities prices earlier this year. But the institution has warned of potential spikes for oil and foodcommodities prices due to geopolitical factors and adverse weather. The benchmark Reuters-Jefferies CRB index, a basket of raw materials including copper, oil and wheat, hita 1-year high in May on the back of rising energy prices, but since then has fallen nearly 13 per cent as the global economy cools.Investors are betting on further falls.According to a latest report by Morgan Stanley, commodities show limited potential for gains in 2012 as the global economy slows and risk aversion boosts the dollar. Acomprehensive solution to Europes debt crisis remains elusive, while economic indicators signal a slowdown and deleveraging and fiscal austerity should impair growth,providing a "myriad of headwinds" for expansion. Commodities had their worst quarter since 2008 in the three months to September 30 on concern that Europes debt crisiswas spreading, while 18 of 24 commodities tracked by the Standard & Poors GSCI Index dropped in November.Dollar- denominated commodities tend to move inversely to the currency. The Standard & Poors GSCI Total Return Index lost 12% in the three months to September 30, thebiggest drop since 2008, as the dollar rallied 5.7% against a six currency basket including the euro.Upside for commodities as an asset class is likely limited given the fragile state of the OECD while the non-OECD should continue to support global growth albeit at a slowerpace. 7. Finally, order compelling open access in powerFinance Ministry supports 26% FDI in aviationThe Union power ministry has told all state governments,Amidst differences within the industry, the Financepower regulators and distribution utilities to delay no Ministry has lent its support to the Department ofmore in implementing the open access provisions of theIndustrial Policy and Promotions (DIPP) on allowingManufacturing drags GDP growth to 6.9% in Q2Electricity Act, 2003. Open access, meaning freedom toforeign airlines to pick up up to 26 per cent equity inA noticeable slowdown in the manufacturing sector,choose the supplier, was being denied for consumers domestic airlines. The 26 per cent limit is considered todecline in mining output and some delay in decision wanting 1 Mw or above, owing to a perceived ambiguity be a better option for any foreign investor as it allowsmaking pulled down the Indian economys growth in the in the relevant provisions. veto rights in board decisions. The 24 per cent limitsecond quarter to 6.9 per cent, much lower than the 7.7 makes an investor an ordinary shareholder withoutper cent growth recorded in the previous quarter this Ranbaxy launches Lipitor genericveto powers on the board of the airline.fiscal. This second quarter GDP growth performance, A last-minute marketing approval from the United Stateswhich is the lowest in nine quarters, is also lower thanmedicine regulator, Food and Drugs Administrationthe downward adjusted revised growth of 8.4 per cent(FDA), and a profit-sharing agreement with Israels Tevarecorded in the same quarter last fiscal. have helped Ranbaxy launch the generic version ofPfizers biggest revenue-earning drug, Lipitor, withoutSAIL-led group gets a big bite of Afghan mining delay. The drug had clocked $7.89 billion in the USpie through September. While the development has put anA month after signing a strategic partnership deal with end to the uncertainty surrounding Ranbaxys ability toAfghanistan, a consortium of Indian companies baggedlaunch the drug on time, it has raised questions overmining rights for three of the four iron ore blocks in theearnings from the deal, due to the profit-sharingHajigak deposit in mountainous Bamiyan province, 130agreement with Teva.kilometre west of the capital, Kabul. Led by SteelAuthority of India Ltd (SAIL), the consortium of public S&P assigns stable tag to Indian banks SBI, HDFC,and private sector companies has gained access to 1.28ICICI and othersbillion tonnes of high grade iron ore, a critical input for International rating agency Standard & Poors hassteel making. The deal would be among Afghanistans assigned a stable outlook to leading Indian bankslargest ever foreign investment agreements, as theindicating that a downgrade is unlikely in the next 18-24country plans to attract $14.6 billion in foreign months. The agency has also said that four banks-Stateinvestment over the next 30 years.Bank of India, HDFC Bank, ICICI Bank and Indian Bank-have a better stand-alone credit profile than that of theIndian government. 8. Emerging MarketsRussia, Europe Agree on Overflights Europes financial crisis deepens, Brazil remains a rareThe European Unionand the Russiangovernment bright spot in the battered global economy. However,SA growth forecast cut on eurozone woes announced the settlement on 1st December, of a long-Brazil isnt immune from the crisis, as an influx of capitalEconomists cut their forecasts for South Africas running dispute about how airlines are charged for flightsfrom investors looking for safe harbor has driven upeconomic growth for this year and the next two dueover Siberia. prices and cooled industrial production. Experts say thatto the impact of the ongoing eurozone debt crisis, a"From Jan. 1, 2014, any charges EU airlines have to pay Brazil has too much on its plate to be able to contribute toReuters poll showed.Seventeen economists surveyed for flying over Russian territory will be cost-relatedrescuing European economies right now, and some sayfor the November Econometer poll showed gross and transparent. They will not discriminate between that offering a bailout would be counterproductive.domestic product (GDP) growth was expected to airlines," the EU said in an e-mailed statement.average 3.1% this year, slowing to 3.0% in 2012 and RI books first trade surplus with China3.7% in 2013, all forecasts lower than those given in Ukraine Gets Third 6-Month Extension on $2Bln Indonesia recorded a trade surplus with China for thethe previous poll just a month ago. VTB Loanfirst time since the implementation of a free tradeUkraines government won a third six-month extensionagreement (FTA) despite signs of slowing export growthSouth Africa: The price of secrecyof a $2 billion loan from VTB Group, Russias second- to the countrys major buyers, the Central StatisticsAs many African countries push for greaterlargest bank, to ease its effort to finance the state budgetAgency (BPS) says. Despite lowering the trade surplustransparency, South Africas controversial statedeficit, its Finance Ministry said.The original six-month and slowing export growth in October, Indonesias tradesecrets bill has unnerved investors who worry the loan, granted in June 2010, has an interest rate of 6.7 balance booked the first surplus of $106.9 million withcontinents top economy may try to hide widespreadpercent. The government wonits firstsix-month China, as non-oil and gas exports to the worlds second-corruption, driving up the cost of business.extension in December 2010 and had an option for more largest economy jumped while imports declined, said BPSParliament has passed a bill that allows anytime, according to the agreement. The loan comes as director for distribution statistics Satwiko Darmesto.government agency to apply to have informationUkraine is seeking to reduce the natural gas price it pays"valuable" to the state protected. The bill alsoto Russia and hopes to sign a new fuel accord by year-end.criminalises the possession and distribution of state It wants to cut the price to about $230 per 1,000 cubicsecrets.meters of gas from $400 it pays now.Battered Europe looks to Brazil, which has its ownproblemsThe visit by International Monetary Fund head ChristineLagarde to Brazil this week was the latest sign that while 9. InFocusOpen Forum All routes to India: worlds top recipients of Is depreciation the new normal?remittancesThe sharp fall in the rupee has given the contrarians their moment in the sun. ForecastsFor the fourth straight year, India has narrowly edged out China to emerge as theof Rs 57 and Rs 58 to the dollar are being taken seriously by the markets and not beingworlds top recipient of officially recorded remittances. According to the latest issueconsigned to the cranks corner. The majority view, however, is that after some moreof the World Banks Migration and Development Brief released on 30th November,wobble, the rupee will appreciate again and slip below the 50-mark. In short, there willcontaining estimates for 2011 remittances, India is expected to receive $58 billionbe gain after this bout of pain, as a newspaper headline succinctly put it.this year, followed by $57 billion flowing to China, and $24 billion to Mexico.Perhaps we should give the contrarians their due this time around. Lets not forget thatIndias inward remittances have grown from $13 billion in 2000 to $58 billion thiscontinuous depreciation, not appreciation, was the norm in the nineties and this trendyear, while remittances to China have jumped from $5 billion to $57 billion duringpersisted until 2003-04. The rupee shed value, on average, every year despite athe same period. The share of remittances in Chinas GDP is just under one per cent,continuous improvement in the current account deficit, the latter being driven bywhile the inflows made up three per cent of Indias GDP last year.aggressive exports of the sunrise industries like IT and pharmaceuticals. Of course, rupeeWorldwide remittances, including those to high-income countries, will reach $406depreciation itself helped the improvement in current account since it helpedbillion in 2011, of which $351 billion will flow into developing countries. competitiveness.According to the brief, high oil prices helped provide a cushion for remittances to The rise of the rupee was actually a relatively short episode that lasted between 2003-04South Asia from the Gulf Cooperation Council or GCC countries this year. Aand 2007-08. Brics-mania was rising, Chindia was in fashion and these pulled indepreciation of currencies in large migrant-exporting countries like India, massive amounts of foreign capital. This left the economy with massive capital surplusesBangladesh and Mexico also contributed to the rise in remittances. However, going that appreciated the rupee despite a continuously deteriorating current account deficit.forward, persistent unemployment in Europe and the United States will affectBrics-mania, incidentally, was not just a lot of hype based on the endless possibilities thatemployment prospects of existing migrants and harden political attitudes toward favourable demographics would yield after a couple of decades. It was under-girded bynew immigration in those regions. rapidly improving fundamentals the fisc was consolidating, growth was high andinflation benign.The contrarian case is the following. Brics-mania is ebbing as China and India post limpmacro and corporate data. India clearly seems headed for a bout of hard-landing on theback of policy waffle and high interest rates. Inflation remains sticky and the room toreverse the monetary gear is limited. The fiscal deficit, too, seems out of control despiterepeated assurances from the government. Massive expenditure on things like food 10. security is pending and it seems unlikely that the government can piece together a credible strategy for getting the fisc back into the genies bottle. The current account deficitis worsening and dwindling capital inflows mean that there simply arent enough dollars going around to service it. To top it all, global uncertainty is running high and the safe-haven bid for the US dollar remains strong. The result: rising pressure on the rupee to adjust this imbalance by shedding value against the dollar.The extreme denouement of this drama would be a balance of payments crisis that could ride on two sets of twin-deficits. The decade of the eighties culminated in a balanceof payments crisis brought on by the interplay of a rising current account deficit and a rising fiscal deficit. This spilled over to the other twin deficit a negative currentbalance and a negative capital account balance. If this were to happen again, the rupee has a long way to depreciate against the dollar before it finds its feet again.While this scenario is possible, we are not entirely sold on this forecast. For one thing, the relationship between the fiscal deficit and the current account deficit has beensomewhat weak over the past decade than in the eighties. Why could this be? Macro-economics 101 tells us that the current account deficit is the sum of the private savingsand investment gap and the fiscal deficit. Over the past decade, the private gap has broken the nexus between the external deficit and fiscal deficit. Between 2003-04 and 2007-08, the fiscal deficit improved continuously and yet the current account deteriorated because high growth implied a rising deficit of private savings over private investments.Flip this argument around and you should get a sense of why a doomsday scenario might not hold. As growth dwindles on the back of limp private investments, the savings-investment deficit is likely to compress and keep the current account deficit under control. Thus, even with a worsening fisc, we might not get a yawning current account gap.That could prevent the rupee from falling too sharply. To fall back on the jargon used by economists, the current account could act as an automatic stabiliser.That said, we believe that instead of an appreciation bias, the rupee is likely to have a deprecation bias over the next few months. Thus, levels of 54 or even 55 to the dollarcannot be ruled out. What can certainly be ruled out is a quick move back to the 47-48 range. Also, even if the rupee were to somehow consolidate at current levels, we mightbe stuck in a completely new trading range against the dollar that involves much weaker levels for the rupee than in the past.In the very near term, there is some scope for consolidation. For one thing, the Reserve Bank of India seems to be getting quite antsy about conditions in the currency market.If it sees another round of depreciation pressure, it might take more aggressive measures to curb it. One option that it could exercise is to supply the dollar-hungry oilcompanies from foreign exchange reserves and take the pressure off the markets. Besides, the rupee seems a trifle oversold and there could just be a technical pull-back thatcould lend it temporary stability. However, any significant reversal could come only if capital flows come back. If the situation in Europe worsens as it threatens to, thatsunlikely to happen in a hurry. However, if there is indeed a comprehensive resolution going forward (we remain eternally hopeful) to Europes impasse or if the US Fed doesanother round of liquidity easing, we might see a turn in the exchange rate that might just sustain. 11. About Investeurs Consulting P. Limited Investeurs Consulting Pvt. Ltd. is a business and financial advisory company, successfully serving businesses since 1994; we offer advisory and consultancy services for successful fund syndication. We have serviced diverse businesses by arranging finance of over $1600 million. We are strategic advisors to our clients during the ideation phase, implementation guides through start-up phase, and trusted advisors overall. All businesses go through a similar life cycle.Once an idea is conceived and a business is established, a company requires capital to fund ongoing growth and expansion. The Capital Structure has to be optimally structured during each phase of business cycle. Investeurs perceives the requirement and accordingly arranges funds to help companies smoothly achieve milestones in the process.Investeurs Competency Kit Alignment of services with clients business Round the year Financial assistance Facilitator between Banks and Clients Hassel free & on time service Industry & Market updatesTeamChronicleBhavna Goal bhavna@investeurs.com NidhiGogia-nidhi@investeurs.comAkanksha Srivastvaakanksha@investeurs.com Harpreet Kaurharpreet@investeurs.com Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.Investeurs Consulting P. Limited S-16, U.G.F, Green Park Ext. New Delhi-110016, www.investeurs.com