Exports decline 9.7% in August

Exports declined by 9.7% year-on-year to USD 22.3 billion in August due to the global economic slowdown.

During April-August, the shipment dipped by about 6% to USD 120 billion from USD 127.6 billion in the same period last year, Commerce Secretary S R Rao told reporters here.

Imports during the month, too, slipped by 5.08% to USD 38 billion, leaving a trade deficit of USD 15.7 billion.

During the first five months of the current fiscal, imports contracted by 6.2% to USD 191.1 billion. Trade deficit during the period under review stood at USD 71.1 billion. "Trade gap is well under control," Rao said.

Diesel price hiked by Rs 5/litre; petrol, kerosene spared

The government today decided to hike diesel prices by Rs 5 per litre effective midnight tonight, but left petrol, kerosene and LPG rates untouched. The politically "bold" move is aimed at reining in the country's heavy fiscal deficit and fend off the threat of being the first in the BRICS group of emerging economies to be downgraded to junk.

A cabinet committee, headed by the Prime Minister, agreed to raise diesel prices by 12%, or Rs 5 per litre, excluding VAT (value-added tax), and restricted sales of subsidised LPG cylinders to six per consumer annually, the government said in a statement. It left petrol and kerosene prices unchanged. The excise duty on petrol has been cut by Rs 5.50 per litre.

Diesel in Delhi costs Rs 41.32 a litre and after this hike, it will cost Rs 46.95, after considering 12.5% VAT on the hike.

Petrol needed a hike of Rs 6 per litre but the government offset that by reducing excise duty by Rs 5.50 per litre from existing rate of Rs 14.78 per litre.

The move is expected to reduce oil-marketing companies’ under recoveries by Rs 20,300 crore.

The tough decisions, which came under immediate attack from allies like Trinamool Congress and Samajwadi Party and opposition alike, were taken at a meeting of the Cabinet Committee on Political Affairs (CCPA) chaired by Prime Minister Manmohan Singh. It will come into effect from midnight.

The government, which has been facing criticism of policy paralysis, had last hiked the price of diesel by Rs 3 a litre in June last year.

BACKGROUND

-- New Delhi subsidises the prices of diesel, cooking gas and kerosene to dampen inflation and protect the poor, a popular policy that has nevertheless put a severe strain on public finances.

-- The rising bill from the fuel subsidy and the resulting strain on public finances have put India's investment grade credit rating in peril.

-- India's rate of inflation probably picked up in August from July's near three-year low as poor summer rains drove up food prices, a Reuters poll showed.

-- The Reserve Bank of India is expected to keep its key interest rate steady when it reviews its monetary policy on Monday, according to a Reuters poll earlier this month. It has called on the government to free up supply constraints that have pushed up food prices, and launch fiscal reforms.

With inputs from agencies.

IIP, inflation data to guide market mood this week

Stock markets are likely to witness volatile trading in the coming week in view of industrial output and inflation data that are lined up for release, according to experts.

That apart, there are indications that the government may hike fuel prices impacting market sentiment.

While stock markets may open on a bullish note following European Central Bank's announcing last week a bond-buying plan to revive euro-zone's ailing economies, key triggers for domestic markets in the form of IIP numbers and inflation data will appear from the middle of the week.

July's industrial output data will be released on September 12, and August headline inflation figure on September 14.

While slowdown in economic growth has made investors cautious, inflation remains above the comfort level of the government as well as the Reserve Bank, keeping interest rates high.

The new data will provide key inputs for a decision on interest rates coming ahead of RBI's monetary policy review on September 17, analysts said.

"Concerns over slowing growth and high level of inflation in the economy are expected to persist in the near-term. The Indian markets continue to take positive cues from global events in spite of the weak domestic economic and political environment," Angel Broking said in a report.

It further said that RBI is unlikely to cut key rates in the mid-quarter review of the policy due next week since upside risks to inflation continue to persist.

Macroeconomic concerns may prompt investors to book profits at higher levels after a smart rally in the market last week, analysts said.

"It will not be easy to hold on to the gains amid growing concerns about the economy and the government's ability to push through key reforms," an expert said.

Besides, the government is widely expected to hike petrol, diesel, cooking gas and kerosene prices simultaneously in the coming week.

While the move will ease pressure on oil marketing companies, high crude oil prices remain a concern for the markets for the fear of fanning inflation.

On NSE index Nifty's weekly outlook, Rakesh Goyal, Senior Vice President, Bonanza Portfolio, said: "For the coming week, if Nifty sustains above 5,350, likely upside target shall be 5,400-5,450. On the other hand, if it goes below the 5,300 level, further selling pressure is likely up to 5,280-5,250."

On the global front, the Federal Open Market Committee (FOMC) will hold meeting on September 12-13 and markets will keenly await its outcome.

Petrol price hike of Rs 5 likely in 24-48 hrs: Source

A fuel price hike was imminent and sources claim the government may allow oil marketing companies to go ahead with a petrol price hike of Rs 5 per litre.

CNBC-TV18's Nayantara Rai reports quoting oil ministry sources that the development in the pricing front is expected in the next 24 to 48 hours. They feel there is no reason for the oil marketing companies to wait after the monsoon session of parliament concludes to increase prices, adding that the Prime Minister’s Office as well as the Finance Ministry are on board.

The oil marketing companies have already lost Rs 600 crore in Q1. They are not compensated for petrol sales and therefore, there is not reason to not allow them to hike prices.

Even for the under recovery figure of diesel, LPG and kerosene, the companies have still not received any support from the centre. They are unlikely to receive any support till the end of December.

The next big question is then when will prices of diesel and LPG be hiked? Sources say, a cabinet note has been sent from the Oil Ministry to the cabinet secretariat proposing a price hike on diesel and LPG.

The quantum might not be there, but the union cabinet will be asked to support a steep price hike saying that it is very much the need of the hour as the Companies have to be protected.

Also, this cabinet note will have some proposals on how to try and reduce subsidy incurred on LPG sales. Therefore, it is set for two reforms, one would be capping the number of LPG cylinders to 4 and 6 per family. However, the other proposal for the rich and MPs to voluntarily give up the LPG subsidy is something the Oil Ministry is not in favour of.

The ministry will also ask the cabinet to try and increase the price of kerosene.

Gold set for dramatic fall if central bankers disappoint

The recent rally in gold, which touched a near six-month high this week, is unlikely to last, say commodity analysts, who forecast prices could fall 10% over the next month if central bank actions disappoint.
Trading close to key resistance level USD 1,700 an ounce, gold prices have had a bull run over the past one month, rising 5.5%, on expectations of monetary easing by both the US Federal Reserve and the European Central Bank (ECB).

But Warren Gilman, CEO of research firm CEF Holdings, says this rally has not been justified given the lack of clarity from policymakers in the West.

The ECB is scheduled to meet Thursday and the Fed next week, and Gilman warns that a sharp fall in gold prices could be coming very soon if the outcome of these central bank meetings disappoints.

“I’m expecting more rhetoric and little in the way of concrete action. The fall in gold could happen as quickly as this week, as we start to see Europe hasn’t been sorting itself out and the solution to solving the debt crisis is not near,” Gilman told CNBC.

Andrew Su, CEO of Sydney-based commodity brokerage Compass Markets, agrees that gold is vulnerable to a “dramatic” downturn as he believes the ECB is unlikely to provide any definitive plans in terms of its bond-buying program.

“We have significant resistance at USD 1,700 and have a lot of opportunity for market disappointment over the next couple of days,” Su said.

He adds that gold could hit USD 1,530, a key technical support level, and then even move below very quickly to USD 1,500. “We are looking to short gold at current levels,” he said.

Dhiren Sarin, Chief Technical Strategist, Asia-Pacific at Barclays, says while he expects a temporary pullback in gold in the coming days given the “significance” of the psychological hurdle at the USD 1,700 level, he is ultimately looking for the precious metal to move higher.

“As long as gold stabilizes in the USD 1,625-1,640 area, we would view a pullback as a healthy development and set up for further gains,” Sarin said

RBI allows QFIs to hedge currency risk of investments

The Reserve Bank today permitted individual overseas investors, also called Qualified Foreign Investors (QFIs), to hedge currency risk for their investments in equity or debt instruments.

"It has now been decided to allow QFIs to hedge their currency risk on account of their permissible investments (in equity and debt instruments)," the RBI said in a notification. Currency risk arises as QFIs are allowed to invest in rupee-denominated units of domestic mutual fund schemes and listed equity shares.

A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs do not include FIIs/sub accounts. As per the notification, QFIs have been allowed to hedge the currency risk on the market value of entire investment in equity or debt in India as on a particular date.

It has also allowed to hedge Initial Public Offers (IPO) related transient capital flows under the Application Supported by Blocked Amount (ASBA) mechanism. As part of hedging mechanism, the QFIs are allowed to pick forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options.

Foreign Currency-INR swaps are allowed for IPO-related flows, it said. In order to attract foreign funds, the government recently allowed QFIs to invest up to USD 1 billion in corporate bond market and debt schemes of mutual funds without any lock-in period.

This limit shall be over and above USD 20 billion for FII investment in corporate debt. As of now, foreign investors were allowed to invest USD 20 billion in the country's corporate bond market. With this, the ceiling increased to USD 21 billion.

Gold hits 4-1/2 month high on Fed stimulus hopes

Gold rose to its highest since April in volatile trade on Friday on speculation of new U.S. stimulus after Federal Reserve Chairman Ben Bernanke said in a key speech that progress to bring down unemployment was too slow and the central bank would act as needed.

The metal fell immediately following the release of Bernanke's speech at the economic symposium in Jackson Hole, Wyoming as markets were disappointed over a lack of imminent stimulus. Investors had expected the Fed chief to send a strong message about a new round of bond-buyback known as quantitative easing (QE).

However, bullion quickly rebounded $30 per ounce, or almost 2 percent, f rom the low as markets later interpreted his comments as stimulus friendly. U.S. equities and commodities also reversed course to turn sharply higher as the dollar fell sharply after Bernanke's remarks.

"The main catalyst for the reversal in gold has been that Bernanke used the words 'grave concern' and the interpretation is that there's going to be more QE if he's using such dire projection for the economy," said Jeffrey Sica, chief investment officer of SICA Wealth Management, which has over $1 billion in assets.

"The stagnation of the labor market in particular is a grave concern...because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years," Bernanke said in a prepared speech at the annual meeting of central bankers, finance ministers and economists.

Bernanke said it had to weigh the costs as well as the benefits of more monetary stimulus, although he hinted the costs may be worthwhile.

Spot gold was up 1.1 percent at $1,674.30 an ounce by 11:08 a.m. EDT (1508 GMT), rebounding from a low of $1,646.73 an ounce.

It climbed to a high of $1,677.80 an ounce, which marked the loftiest price since April 12.

U.S. COMEX gold futures for December delivery were up $19.90 an ounce at $1,677, with trading volume on track to finish at its highest level in a month, preliminary Reuters data showed.

Among other precious metals, silver jumped 2.2% to USD 31.08 an ounce. Platinum was up 1.5% at $1,523.99 an ounce, while palladium inched up 0.9% at $620.50 an ounce.