Pre-Independance Day Rupee / US Dollar / Gold research notes

India's gold demand weakened on Tuesday as prices hardened making buyers move to the sidelines, but still on the lookout for a fall, dealers said.
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"Demand is light... it is going to be like this for the next few days," said Lokesh Agarwal, director at Brijwasi Bullion & Jewellers Pvt. Ltd. in Lucknow.

Gold prices moved beyond 8,700 rupees per 10 grams as the dollar weakened overseas making more people switch to the precious metal. In the local market, a stronger rupee eased prices, but only slightly.
Commerce minister Kamal Nath today said the recent decision by United States to terminate the generalised system of preferences (GSP) on jewellery and brass lamps could lead to job losses in the country.

"The decision is likely to lead to a number of jobs being lost in the jewellery sector in India, specially among vulnerable groups of society, Nath said in a statement released today.

The US government has decided not to renew the competitive needs limitation (CNL) waiver for gold jewellery and brass lamps from India, thereby ending the GSP preference.

As a result, exporters of jewellery from the country would have to pay 4% duty on their products. Export to US comprise one third of the total $5.21 billion worth of jewellery by India. Moreover, handicraft exporters, who are already facing lot of problems due to the appreciating rupee, are likely to be adversely hit because of the decision to terminate GSPs on brass lamps.

"GSP is a unilateral programme of the US government, and is not a result of negotiations with GSP beneficiaries. Hence, it is upto the US government to decide on how it wishes to administer the programme," added Nath.
Agarwal said his clients spread across Uttar Pradesh may resurface "in a day or two" if prices hold on to the current levels, or better still, fall.

Buyers were in no hurry to acquire stocks, yet they would not resist a big fall, said a dealer in New Delhi.

"If prices fall back to 8,600 rupees, people will probably buy," said Mayank Khemka, managing director of Khemka International Pvt. Ltd. in New Delhi. "Otherwise the whole of July will be dull."

Indian gold buying is expected to enter its busy season after August, when a slew of festivals ring in celebrations after the monsoon season that traditionally damps demand.
India’s benchmark Sensitive Index rose to a second straight record yesterday. Larsen & Toubro Ltd, the nation’s biggest engineering company, gained on reports the company plans to sell its stake in UltraTech Cement Ltd.
The Bombay Stock Exchange’s Sensex added 142.25, or 1%, to 14,806.51. The index on Monday surpassed the record set on February8.
The S&P/CNX Nifty Index on the National Stock Exchange rose 43.80, or 1%, to 4,357.55, a record.
“Selling the stake will mean ready funds for Larsen, which has an impressive order book,” said KK Mittal, who manages the equivalent of $37mn in stocks at Escorts Asset Management in New Delhi.
Grasim Industries gained after cement sales in June, including those at group company UltraTech Cement, climbed 2.2% from a year earlier.
Larsen rose Rs24.05, or 1.1%, to Rs2,258.95. Larsen plans to sell its 11.5% stake in UltraTech Cement, the Times of India said, citing chairman A M Naik. Separately, Larsen announced a special dividend of Rs2 a share yesterday.
Grasim Industries, the nation’s second-largest cement maker, rose Rs84.05, or 3.2%, to Rs2,702.55. UltraTech Cement added Re0.1, or 0.01%, to Rs884.25. Grasim and UltraTech Cement, part of the Aditya Birla Group, together sold 2.53mn metric tonnes of cement last month, Aditya Birla Group said in a faxed statement on Monday.
Overseas investors bought a net Rs58.4bn ($1.4bn) worth of Indian shares on Friday, according to the latest figures available on the Securities and Exchange Board of India website.
The rupee advanced for a fourth day to the highest in almost a month on optimism overseas funds will buy more local equities to benefit from accelerating economic growth.
Global funds bought a net $4.35bn of shares in the six months through Saturday, compared with $2.6bn a year earlier, according to the regulator. It helped the benchmark Sensitive Index rise to a record for a second day.
“India’s growth is attracting committed overseas investors,” said K Raghunathan, chief currency trader at state-owned Union Bank of India in Mumbai. “We could see dollar supply sustaining and that will help the rupee.”
The rupee rose 0.3% to 40.54 against the dollar as of the 5pm close in Mumbai according to data compiled by Bloomberg. That is the highest since June 5.
The south Asian nation’s economy expanded 9.4% in the year ended March 31, a pace only behind China among major world economies.
Commerce and Industry Minister Kamal Nath expects foreign investment to double to $30bn this fiscal year.
Share sales by companies may double this year to an all-time high, buoyed by demand from investors attracted by the fastest pace of growth in almost two decades, JPMorgan Chase & Co said last week. Reserve Bank of India Governor Yaga Venugopal Reddy said on Monday the monetary authority may need stricter policies as the rising capital flows may help quicken inflation. – Bloomberg
Following was the price being quoted by a bullion bank in rupees per 10 grams for .995 gold at 1 p.m. :

Bank Tuesday Monday

UTI Bank 8,718 8,660

Following are gold prices in rupees per 10 grams on the Multi Commodity Exchange of India Ltd. at 2:00 p.m. :
Though not fully convertible, Indian rupee is being freely accepted and exchanged in many Asian countries and Indian leisure destinations are quoting tariff in rupees, even as exporters feel the pinch from the rising currency, reports said yesterday.
The rupee is being freely accepted and exchanged in Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka and some other countries as more commercial establishments, hotels and even money changers are willing to accept the currency, reported the Economic Times.
Tarmo Wong, a manager with a money exchange shop in one of the biggest hotels in Singapore said, “We have orders to accept 500 and 1000 rupee bills. We have been doing this for almost six to eight months now.”
In some Asian countries banks and foreign exchange agents have started accepting Indian rupees.
“In the past few months, the rupee has gained acceptance in almost all countries in Asia,” said Prakash Dagia, a regular business traveller to Asian countries, who added that the best part is one can exchange a currency back to Indian rupees before flying back to India.
Leading hotels in India are asking foreign tourists whether they would like to settle bills in rupees instead of in dollars, the newspaper reported.
Several hotels may soon do away with the dual tariff structure and offer a single rupee tariff - a move that will place Indian and foreign tourists on par.
“We are introducing a single-rupee tariff in October this year for all our hotel properties across the country except for the one in Goa, which will follow a charter rate,” said Pattu Keswani, chairman of hotel chain Lemon Tree and Red Fox.
The rupee-dollar fluctuation has affected revenues of hotels across the country by over 10% this year, as they earned less selling to foreigners paying in dollars.
The dip in dollar rates in the first half of the year may force hotels, which usually revise room rates in October every year, to consider a tariff hike well before that time.
The effect of the weakening dollar is also being felt in leisure hotspots frequented by foreign tourists such as Agra, Jaipur, Goa and Kerala.
Carlson Group, owners of the Radisson brand, has already started quoting rupee rates while entering into advance contracts with international clients. “Rupee rates give us more stability,” said K B Kachru, South Asia vice-president, Carlson Group.
Despite the Indian rupee not being a deliverable currency in the international money market, its acceptance is on the rise due to growing trade and a surge in tourist inflows.
The flip side of the rising rupee is being experienced by Indian exporters, who have been lobbying with the government to provide measures to give immunity against a stronger rupee.
Export growth took a dip in May with just 18% growth against 20.3% in the same month in the preceding year.
Commerce and Industry Minister Kamal Nath said that the government was working on a package to give relief to exporters who have been hit by the strengthening rupee.
The rupee rose yesterday to 40.54 per dollar, its highest level since June 6, spurred by the prospect of surging investment flows into Asia’s third-largest economy.
“The positive signals from Asian equities are leading the market to believe that the stock market will do well, and that the inflows will be good,” a chief dealer with a foreign bank, told the Economic Times.
The rupee hit a nine-year high of 40.28 rupees in late May, but was knocked off its peak by suspected intervention by the central Reserve Bank of India (RBI). It has gained about 9% this year, driven higher by robust capital flows into the fast-growing economy.