Crude tremor may send inflation over 9% mark

Fuel price hike may push inflation close to double digit. With sharp increase in prices of petroleum products, economists say inflation is bound to cross a 13-year high of 9%, from the current level of 8.1%.

"It could cross 9% in the near-term owing to the hike in petrol and diesel prices," HDFC Bank chief economist Abheek Barua said. Besides, the base effect is also not favourable as the inflation is being calculated at the lower base, he added. The base effect relates to inflation in the corresponding period of the previous year, when it remained almost flat.

Petrol price was on Wednesday hiked by Rs 5 per litre, diesel by Rs 3 a litre and cooking gas by Rs 50 a cylinder. Petroleum secretary M S Srinivasan said that the hike could lead to about 0.5-0.6% rise in inflation rate. Petrol and diesel prices, which have gone up by 11% and 8.5% respectively, will increase the inflation rate by about 0.3%, while LPG cylinder would add 0.2-0.3% to the rate.

Besides, there would be cascading effect of diesel price rise on commodities in due course of time by way of higher transportation cost, resulting in further pressure on inflationary expectations.

According to Crisil’s principal economist D K Joshi, headline inflation could definitely cross 9% in the week to come when data would capture the oil price hike.

Echoing the view, Lehman Brothers India economist Sonal Varma said "we expect inflation to cross 9% in the coming weeks". Referring to cascading effect of diesel price hike, Barua said that in the next three to four months the second round of impact would be visible, which could increase the rate of inflation by another 0.3%.

"It would be in the form of rise in freight charges, leading to increase in prices of many commodities like automobile, FMCG, fruits and vegetables, iron and steel," he said.

Last week, FM P Chidambaram had said that any increase in administered prices of petrol would have moderate inflationary impact in the short term, but its effect on prices in the long term could not be predicted as there would be a cut in expenditure under some heads as well. Petrol has a weight of 0.88%, while diesel has a weightage of over 2% in the Wholesale Price Index, on the basis of which inflation is calculated.

Inflation figures are released with a lag of around two weeks. As such, the impact of petroleum price hike would be reflected in the official data to be announced on June 20

Indian teacher in maths big league

Original research in mathematics is rare in India but a schoolteacher inspired by the legendary Srinivasa Ramanujam has won accolades for extending two complex theorems of geometry by his sheer grit and genius.

Shri Ram Gupta’s contribution is now being appreciated not only by NCERT, HRD ministry and Limca Book of Records but also by the American Mathematical Society.

Otherwise, Gupta, 59, had been happily teaching at a Kendriya Vidyalaya in Jhansi for over three decades. The teacher’s works on Menelaus’ theorem and cyclic polygons theorem have led to their extension to bring about approximate generalizations. A theorem is good when its applicability is universal and he always felt there was something amiss in both postulates.

"For 10 years or so, I’d think about these theorems day and night. I felt there was something amiss. This doubt prompted me to keep exploring. I was successful in generalizing them for higher geometric shapes," Gupta told TOI after he had made a presentation of his second theorem at NCERT on Tuesday.

Submitted to the American Mathematical Society on July 24 last year, the work was acknowledged by it as "extension" of Menelaus’ and cyclic quadrilateral theorems. The citation by Limca Book says that Gupta "developed original theorems and registered them with the ministry of HRD on April 12, 2005".

For his second theorem, the teacher even coined a new phrase — "interior alternate angles" — in place of "apposite angles" because by using interior alternate angles, the theorem has been proved and generalized for any even-sided cyclic polygon.

Gupta was interested in the study of Menelaus’ theorem (named after the Greek mathematician) from the beginning and he was intrigued by the fact that the nature of all rectilinear figures was approximately the same. This led him to develop his postulate. Rectilinear figures refer to triangles and other geometric shapes containing any number of sides. The second theorem, however, came to Gupta more as "random thought" about the symmetric nature of cyclic hexagons (a geometric figure with six sides).

In mathematical parlance, the work done by Gupta can be classified as a major achievement because of their "generalization strength", a crucial aspect of establishing a postulate. His work, which can be used by architects in planning projects, is also the first ever copyright in geometry.

"Mathematical research is languishing in India. Most young people now go for job-oriented courses and basic science suffers. I wish more attention was paid to basic research. This would also help establish the hidden Indian talent on the international stage," Gupta said.

Children 'happier with grandparents'

Bringing up a kid is no child’s play. But if you want your offsprings to grow up happier, get your mom and dad to raise them, for a study has revealed that children grow up happier under care of grandparents.

Researchers in Britain have found that grandparents can help young children because they often have more time to spend with them than working parents, and they are also good at solving their problems and discussing their future plans.

In addition, grandparents can help keep children calm during crises such as their parents’ divorce, the study found.

The researchers from Oxford University and Institute of Education, London, came to the conclusion after analysing a survey of 1,500 kids in Britain, The Daily Telegraph reported.

"What was especially interesting was the link between involved grandparents and adolescent well-being. Closeness was not enough: only grandparents who got stuck had this positive impact on their grandchildren," lead researcher Ann Buchanan of Oxford University was quoted as saying.

Can Gold counter inflation & currency fluctuations?

The real value of gold is not that it provides a quick, speculative fix, but that it can provide a sure and steady means of protecting wealth and enhance the consistency of returns.

With gold’s role as a portfolio diversifier, a hedge against inflation and exposure to the dollar, there are several compelling arguments for investing a portion of one’s portfolio in the yellow metal.

Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset class. Portfolios that contain gold are generally more robust and better able to cope with market uncertainties than those that don’t.

Adding gold to a portfolio introduces an entirely different class of asset. Gold is unusual because it is both a commodity and a monetary asset and is an effective diversifier because its performance tends to move independently of other investments.

Independent studies have shown that traditional diversifiers such as bonds often fail during times of market stress or instability. Even a small allocation of gold has been shown to significantly improve the consistency of portfolio performance during both stable and unstable financial periods. Gold can improve the stability and predictability of returns. The performance of gold is not correlated with other assets because the gold price is not driven by the same factors that drive the performance of other assets.

Gold is often cited as being an effective hedge against fluctuations in the US dollar, the world’s main trading currency. If the dollar appreciates, the dollar gold price falls and similarly a fall in the dollar relative to the other main currencies produces a rise in the gold price.

In a recent study by leading metals consultancy GFMS Ltd, the strength of the link between twenty-two commodities and the US dollar was examined. The results clearly suggested that not only is gold a more potent hedge against the dollar than other commodities, but also that protection is provided when most needed (when the dollar is losing value), with relatively little upside foregone during a period of dollar appreciation.

Like all physical commodities, gold is an asset that bears no credit risk. Holding assets in the yellow metal involves no counterparty and is no one’s liability. In addition to that, the physical properties of the metal make it an excellent alternative to money.

Gold is durable. Unlike many of the other commodities examined, other things remaining equal (i.e. assuming no changes in price), there is no depreciation in the value of gold, other than any storage costs that might apply. Gold is fungible. It is, at least in theory, infinitely divisible with virtually no losses (other than any operational costs the process might incur).

Furthermore, gold has a high value to volume ratio, which makes it easily transferable, with low transport and storage costs. Moreover, gold is one of the deepest commodity markets with the highest levels of liquidity, second only to oil.

The purchasing power of gold has not diminished since Biblical times. According to the Old Testament, during the reign of King Nebuchadnezzar, an ounce of gold bought 350 loaves of bread. Today, an ounce of gold still buys 350 loaves.

The value of gold therefore, in terms of real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined. There is a growing body of research to bolster gold’s reputation as a protector of wealth against the ravages of inflation. Market cycles come and go, but gold has maintained its long term value.
So gold is often bought to counter the effects of inflation and currency fluctuations. In fact extensive research from a range of economists has consistently shown that, in spite of price fluctuations, gold has consistently reverted to its historic purchasing power parity; and during periods of financial, economic and social turmoil, gold has been a safe refuge when the value of other assets was all but destroyed.

In volatile and uncertain times, we often witness a ‘flight to quality’, as investors seek to protect their capital by moving it into assets considered to be safer stores of value.

Gold is among only a handful of financial assets that is not matched by a liability. It can provide insurance against extreme movements on the value of traditional asset classes that can happen in unsettled times.

Some recent examples of the refuge afforded by gold include:

In 1997/98 the Government of South Korea asked its citizens to allow it to buy their gold holdings in exchange for local currency debt instruments. The Government raised over five million ounces of gold in this way which it sold for hard currency. As a result it was able to service its external debt.

Fearful of the implications of the forecast electronic and communications disaster surrounding Y2K, there was a flight to gold in 1999.

The first quarter of 2002 saw a flight to gold by Japanese investors as they awaited the withdrawal of government guarantees on bank deposits.

Gold’s liquidity is one of its critical investment attributes. Gold can be traded around the clock in larger size, at narrower spreads and more rapidly than many competing diversifiers or mainstream investments.

Sensex closes at 15, 769, up 255 pts

Bombay Stock Exchange benchmark index Sensex finally closed Thursday in the green by closing at 15769.72, breaking a three day losing streak.

Earlier, the 30-share benchmark index opened at 15,479.65 points and touched a high of 15,814.80 before closing at 15,769.72 points. It went up by 254.93 points or 1.64 percent compared to its closing figure Wednesday.

The S&P Nifty index of the National Stock Exchange, which opened at 4,586.95 points, closed at 4,676.95. It went up by 91.35 points or 1.99 percent from its previous close.

The markets started on a firm note tracking mixed Asian markets and stayed just about in the positive zone until early afternoon. Then a spurt by punters during late trade saw the markets close with a substantial gain.

The BSE Midcap index, which closed at 6,400.29 points, went up by 2.92 points or 0.05 percent.The BSE Smallcap index, which closed at 7,735.59 points, went up by 15.33 points or 0.20 percent.

Oil price burden: PM asks ministers to cut expenses

Rising oil prices and inflation rate have prompoted India’s Prime Minister Manmohan Singh to ask his ministerial colleagues to curtail their official spending and embrace austerity.

Prime Minister Singh’s letter to his ministers on Thursday came after the government decision to hike the fuel prices created a political opposition in the country.

In the letter, the prime minister asked the minister to be "aware of the huge burden imposed on our financial resources due to the continuously rising trend in global oil prices and our dependence on import of crude."

"As we initiate steps to meet this resource crunch, it is inevitable that some of the burden would have to be borne by the public. We need to explain to the people the constraints and reasons that have compelled the Government to introduce these measures," he said.

Simultaneously, he said, it is equally necessary for us to introduce the utmost economy in our own administrations and establishments. It cannot be denied that there is substantial scope to reduce expenditure on travel and administration.

"As we ask the people to bear some of the financial burden of our oil imports, it is not only necessary from the resource conservation point of view but also as a moral duty to cut out all wasteful expenditure in our own establishments," the prime minister told ministers.

"I am, therefore, writing to ask you to severely curtail expenditure on air travel, particularly foreign travel, except in cases where it is deemed to be absolutely necessary. This economy may be made applicable immediately for your own self and also for all senior functionaries in your Ministry," he added.

Indian shares see-saw on inflation concerns

Indian shares see-sawed on Thursday as attempts to claw back after falling more than 5 percent this week faced headwinds, with investors worried high inflation would invite monetary tightening.

"The bulls appear to be cornered from all fronts," brokerage India Infoline said.

"The fiscal situation is also likely to worsen. Inflation is soon expected to hit double-digits," it said adding that any minor pull-back should be used to lighten positions.

At 11:46 a.m., the benchmark 30-share index was up 0.53 percent, or 81.46 points, at 15,596.25. The index opened 0.2 percent down, and fluctuated between losses of 0.4 percent and gains of 0.7 percent.

In the broader market, losers led gainers 1,376 to 917 on volume of 99.2 million shares.

On Wednesday, the government raised state-set petrol and diesel prices by about 10 percent, the biggest increase in 12 years, to curb losses at its state-owned refiners.

Analysts expect the move could lift India’s annual inflation to 13-year highs above 9 percent in early June, a Reuters poll showed, crimping consumer spend and delaying vehicle purchases.

The fuel price rise and inflation worries drove the index down 2.81 percent on Wednesday to its lowest close in two months, and took losses in 2008 to more than 23 percent.

Software stocks that get more than half their revenue from the United States rose in morning trade as the rupee weakened against the dollar, raising expectations for better earnings.

Bellwether Infosys Technologies was up 2 percent at 1,907.15 rupees, while No. 4 Satyam gained 2.8 percent to 499.05 rupees.

Top explorer Oil & Natural Gas Corp, which rose 5.3 percent on Wednesday, raced 3.9 percent to 921.80 rupees as the fuel price increase would lower the discount the state-run firm is forced to give state refiners.

Citigroup said it expects about 60 percent upside in ONGC’s earnings in fiscal year 2009.

Indian state-run oil retailers are partly compensated for selling fuel at low prices through government bonds and discounts by ONGC.

Analysts said the share of the compensation package for refiners by oil producers such as ONGC would come down to 18 percent from 33 percent.

Financial and property stocks fell in anticipation of tighter monetary policy, which would hurt their growth. No. 2 lender ICICI Bank dropped 0.7 percent to 752.50 rupees and smaller rival HDFC Bank fell 2.2 percent to 1,188.80.

Top listed real-estate firm DLF Ltd fell 3.4 percent to 536.40 rupees.

The broader 50-issue NSE index was up 0.69 percent at 4,617.25.

Elsewhere in the region, Karachi’s 100-share index was down 0.21 percent at 13,061.92, but Colombo’s All-share index gained 0.79 percent to 2,511.47.

STOCKS ON THE MOVE

* Top utility vehicle and tractor maker Mahindra & Mahindra was down 1.1 percent at 562 rupees, with higher fuel prices expected to crimp demand in the near term. The company said on Thursday it had agreed to buy Italy’s Engines Engineering SpA.

* Tanla Solutions Ltd was up 4.4 percent at 270 rupees after it said its unit had bought a Finland firm for $18.6 million.

TOP THREE BY VOLUME

* IFCI Ltd on 4.4 million shares

* Anu’s Laboratories on 3.8 million shares

* Gokul Refoils on 3.5 million shares