THE ECONOMIC WEEKLY
December 12, 1964
Around Bombay Markets
Despondent Dalal Street
Thursday, Morning
THE rot continues. There seems to
be no early end to the feeling
of utter despondency that has come
to prevail on the stock market. Activity has shrunk to such small proportions that the entire week's business
could be easily put through in a single
two-hour session without causing any
excitement in the market. There was
nothing particularly encouraging in
the week's news. Even so the market
was unable to put up a steady show
which one would normally expect from
a market which has come down all the
way to stand very near its year's low.
With the Finance Minister Krishnamachari rarely missing an opportunity to
emphasise the need for mobilising resources, though only for accelerating
the economic tempo, the market has
given up all hopes of any major fiscal
relief in the forthcoming Budget.
That is why the market did not take
any serious view of the Prime M i n ister's statement in London that the
Government was taking measures to
deal with the situation created by the
sluggishness in the capital market and
that the difficulties in the way of capital formation were being overcome.
The market has grown so weak and
anaemic that it is unable to register
any worthwhile rally even on technical
considerations.
With trading sentiment continuing to
be unsettled by the discouraging performance of Rayon shares, the stock
market was unable to derive much
comfort from TISCO's record steel
output in November and the release of
encouraging results by certain companies. Larsen and Toubro were probably the only bright spot last week.
These shares were marked up following the announcement of a two-fortive bonus issue. While activity last
week was at an extremely low ebb and
equities remained subdued, there was
little evidence of any important selling.
Quite a great deal has been heard
recently about the propriety or impropriety of the 5 per cent spread between the sale and repurchase prices
of the units of the Unit Trust The
units are being sold at Rs 10.50 while
the repurchase price is Rs 10. Whatever be the reasons for quoting such
a wide spread, there can be no deny-
ing that the 5 per cent spread makes
a mockery of the concept of liquidity.
Even the most inactive counters on
the stock exchange can be bought and
sold at a much smaller difference. Besides, it is very clear that investors
in the units of the Unit Trust can
have very little hope of any appreciation in the value of their investment
and those who purchase the units at
the current price of Rs 10.50 face the
risk of a capital loss should they be
obliged to liquidate their holdings.
Cotton
Prices Well Above Ceiling
COTTON prices continue to soar,
Trading in futures came to a
standstill (only in the official ring, of
course) on Wednesday, December 9,
as the March contract kept above Rs
775—the ceiling rate fixed for the predelivery period. In kerb dealings, the
quotation was marked up to Rs 779
which is the highest price ever recorded by the hedge contract (Mogiai fine
25/32") so early in the season. Conditions in the spot market have been
far worse, prices having recorded a
further rise of Rs 20 to Rs 30 per
candy during the week. Prices rose despite the announcement of the longawaited global import quota for 2.14
lakh bales, including 70,000 bales of
cotton stapling 1" and below from
Pakistan. Cotton prices are currently
quoted well above the overall ceilings
—the unofficial premiums ranging
from Rs 50 to Rs 100 per candy. Indian cottons are not only at their ailtime high but they are about Rs 200
to Rs 300 per candy costlier than the
comparable foreign cottons.
Cotton prices have risen by Rs 100
to Rs 175 per per candy from the
lowest levels recorded during September-October. The rise cannot be explained away as due to the downward
revision of crop estimates due to some
damage in certain tracts of Khandesh
and Punjab because even according to
the revised estimates, the 1964-65 cotton
crop is not placed below 60 lakh bales.
With a record carryover of about 26
lakh bales and anticipated import of
9.5 lakh bales, the overall supply position of cotton can be regarded as reasonably satisfactory, increased m i l l
consumption notwithstanding. That
cotton prices should have risen to alltime high levels in face of satisfactory
supply is a matter which needs to be
viewed with serious concern. The
Union Minister of Commerce, Shri
Manubhai Shah, conceded in the Lok
Sabha the other day that cotton prices
had pierced the ceilings in some casesOne could perhaps excuse the Minister
for not being well-informed about the
situation in the cotton market where
all varieties have pierced the ceilings,
but it is amazing how Shri Manubhai
Shah could admit that prices had pierced the ceilings and still take no action
on it which make utter nonsense of the
scheme of price control.
The Forward Markets Commission's
recent decision tightening the margin
rules at above Rs 775 makes little
sense because the hedge contract cannot be officially traded at above that
price during the pre-delivery period—
that is up to February 28. If the Commission were really earnest in enforcing
discipline on bulls, it should have made
the margin rules applicable at substantia
ally below the prevailing levels. If bulls
had been asked to deposit heavy margin
at above Rs 750, it could have produced some sobering effect on the futures
market. Of course, what really matters
is the behaviour of the spot market
over which the Commission has no control. New Delhi alone is competent to
take measures which, if effectively enforced, can easily bring about a big decline in prices.
In the situation obtaining in the cotton market for the past several weeks,
requisitioning of stocks, compulsory
survey and introduction of quota system
for mill purchases was the least that
one could have expected from the Government. Certainly, the authorities do
not have to wait from a representation
from the mills to take action to keep
prices within the statutory ceilings.
What has brought about an unprecedented rise in cotton prices in face
of a fairly satisfactory supply position
is the unusually slow pace of new crop
arrivals due essentially to large-scale
withholding of stocks by agriculturists,
cooperative societies and ginning factories. Not unless the authorities take
strictest possible measures to discourage
holding and hoarding of stocks at all
the levels, prices cannot be expected to
1965
THE ECONOMIC WEEKLY
December 12,1964
come down to any considerable extent.
The supply of credit should be severely
curtailed by stepping up the margin on
bank advances against cotton. Strange
as it might appear, curtailment of credit
facilities seems necessary for the smooth
marketing of cotton. Farmers, cooperative societies, ginning factories, traders
and mills should be prohibited from
carrying with them stocks in excess of
certain prescribed limits. The situation
in the cotton market has already assumed serious proportions and the authorities cannot afford to delay strict action
on all fronts to discourage holding and
hoarding of stocks at various levels.
Ceilings on cotton prices have no meaning if they are not to be strictly enforced.
Oilseeds
Runaway Boom
oILSEEDS
prices rose to new high
levels last week. Groundnut January shot up from Rs 103.50 to Rs
110.50 despite the penal
margin of
Rs 10,000 per 25 metric tons—the
minimum unit of trading. Other oilseeds seemed
merely to follow the
trend in groundnut.
Castor March
moved between Rs 191 and Rs 192.50,
linseed March between Rs 46 and Rs
46,75 and cottonseed January between
Rs 116 and Rs 117. With groundnut
futures keeping above the permissible
weekly price range and
castor and
linseed quoted above their respective
ceilings of Rs 190 and Rs 4.5 valid
up to the end of January,
official
trading in oilseeds futures was virtually
at a standstill throughout the week.
Only cottonseeds were traded officially
and business elsewhere was conducted
in kerb.
Apart from the continuing strong
bull grip in groundnut
despite the
heavy margin, last week's spurt was
in no small measure due to the Government's decision to allow freely export of groundnut HPS, subject to an
undisclosed ceiling. Sentiment in futures has been aided by the approaching maturity of the contract. The spot
material is commanding huge premium
with Karad Bold ready quoted around
Rs 11.9 (per 100 kilograms). In view
of the restrictions on the movement
of groundnut
outside Gujarat State
and also outside
certain districts of
Madhya Pradesh deliveries against the
January contract will be
extremely
difficult. This has emboldened bulls
to tighten their grip
on the hedge
contract.
The situation obtaining in the oilseeds market is much worse than in
cotton. Oilseeds prices are, no doubt,
still the highest levels recorded last
season, except for castor which are
quoted at the highest level for many
years. But the oilseeds market is
threatened with serious payments difficulties. In order to resolve the payments crisis, a special committee has
been appointed to explore the possibility of an amicable settlement of outstanding positions. The outcome of the
bull-bear tussle will be awaited with
interest.
Apart from the suspension of futures
dealings and the payments crisis, the
rise in oilseeds prices has a serious
impact on the common man who is
becoming
increasingly
discontended
because of the soaring cost of living.
At a time when the Government seems
completely unable to hold the priceline in oilseeds, the least it can do is
not to aggravate the situation by allowing exports which are likely to push
up prices of edible oils. It is precisely
on this score that the Government's
recent decision
allowing
export of
groundnut HPS has been strongly criticised even by those who are fully
seized of the necessity of augmenting
the country's scarce foreign exchange
resources in every possible way. Export
sales in groundnut HPS to-date are
estimated between 15,000 and 20,000
tons and it is rarely that India is able
to sell more than 30,000 to 40,000
tons in a year. This is a very small
percentage of the total crop. But the
psychological impact of permitting exports on domestic prices is immense.
It bears repetition that never in living memory have oilseeds prices been
quoted so high at this time of the
.season.
This is the time when the
movement of the groundnut, crop is in
full swing. But the pace of arrivals
this season is unusually small. Apart
from restrictions on the movement of
goods outside certain areas, the flow
of marketable supplies has been seriously affected by the withholding of
stocks by agriculturists and co-operative societies. The slow pace of the
crop movement
and the
prevailing
high prices of oilseeds, despite a record groundnut crop and the promising outlook for other crops, indicate
that agriculturists
have developed a
marked preference for holding goods
rather than cash and that the Government is unable
to take measures
which can discourage holding and
hoarding of stocks, particularly by
growers and co-operative societies. But
if the Government continues to remain
an idle spectator, the situation is like-
ly to get out of control and edible oils
will go beyond the reach of the common man.
Money Market
Thursday morning
CONDITIONS in the inter-bank
call loan market
turned somewhat comfortable during this week.
Rates have not sagged beyond half a
per cent, but; borrowers have been
able to obtain
their
requirements
easily. Last week funds were in demand even at 6 per cent, that is, one
per cent above the
Bank rate; but
currently they are freely available at
5.50 per cent. In Calcutta, the call
rate moved between 6.5 per cent and
4 per cent and in Madras it was almost steady at 4.75 to 5 per cent.
That the stringency was mainly due
to heavy tax payments is now apparent from the spurt
in the Central
Government's deposits
by Rs 26.16
crores during the week ended December 4.
The aggressive
demand for
funds led banks to borrow from Reserve Bank about Rs 17.42 crores in
one week and use their cash balances
to the extent of Rs 4.72 crores. Borrowings from State
Bank and other
notified banks expanded by Rs 13.28
crores upto November 27. But at this
juncture the slow pick-up of the busy
season seemed a blessing in disguise;
otherwise the call loan market would
have passed through a difficult period.
At least during the three weeks ended
November 27, Bank credit did not
expand and at the same time banks
had the advantage of higher aggregate
deposits except during the week ended
November 27 when the deposits fell
by Rs 11.99 crores. It is not also unlikely that the spurt and steadiness in
the rate might be due to the anxiety
to conserve resources for one's own
needs and year-end requirements.
On account of the pressure for funds
to meet heavy
withdrawals, demand
for Treasury Bills tapered off during
the last two weeks ended December 8.
The rates of discount went up from
2.360 per cent to 2.400 per cent and
again to 2.500 per cent. Barely Rs
52 lakhs Hew towards 'Intermediates'
during the period.
A further indication of the heavy
demand for funds is seen in the increase in Notes in Circulation by Rs
50.51 crores during the week ended
December 4. This expansion is partly
to be attributed to beginning-of-themonth requirements. As the expansion
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December 12,1964
THE ECONOMIC WEEKLY
was met by the Banking Department
to the extent of Rs 13.84 crores, additional note issue amounted to only
Rs 36.65 crores. This is followed by
a rise of Rs 40 crores in Rupee securities in the Issue Department to pro-
vide cover for the additional note
issue and coins.
Foreign securities have continued
unchanged at Rs 85.46 crores while
foreign balances improved by Rs 3.38
crores to Rs 11.39 crores.
Business Notes
West Coast Paper Mills
W E S T Coast Paper Mills has re" corded further progress during the
year ended June 30. 1964, Production
has been an all-time record at 30,213
tonnes showing an increase of 2.961
tonnes over the previous year. Quality
of the paper also has improved as a
result of extensive experiments conducted in the laboratory. Sales amounted to 30,214 tonnes during the year
accounting for a net turnover of Rs
4.44 crores as against Rs 4.00 crores
in 1962-63. Gross profits after providing for depreciation at Rs 49.82 lakhs
(Rs 39.38 lakhs) worked out to Rs
99,03 lakhs compared with Rs 70.49
lakhs. The larger profit has been earned in spite of rising prices of essential
chemicals and raw materials and controlled selling prices of paper, because
of higher production and efficiency.
Taxation, however, took away a larger
slice this year. Rs 51 lakhs as against
Rs 10 lakhs last year, with the result
that the net profit was lower by Rs
12.21 lakhs at Rs 47.53 lakhs. But by
reducing the allocation to General
Reserve by Rs 18 lakhs to Rs 21 lakhs,
the Directors have raised the disposable balance from which, after meeting a preference dividend of Rs 7.02
lakhs, a dividend at 13 per cent (11 per
cent) on ordinary shares is proposed
to be paid, absorbing Rs 19.50 lakhs
(Rs 16.50 lakhs).
The Company proposes to invest
Rs 66 lakhs in the equity capita! of
Andhra Pradesh Paper Mills and will
render technical assistance for a period
of 8 years on a remuneration of Rs
4 lakhs per annum. Besides securing
the facility from the Mysore Stale
Government to extract 20,000 tons of
bamboo from the forest areas on a
royalty basis, the Company has also
embarked upon an intensive programme to plant bamboos and certain
fast growing tropical woods not usually grown in Dandeli forests.
such as are used for cosmetics and
other dry products,
to friction-iop
cans for paints, open-top sanitary cans
for fruits and vegetables and other
precision containers. It is also manufacturing decorated and lithographed
metal cans in a variety of sizes and
shapes to meet different packing requirements. Light-gauge tin plate and
sheet metal products
are also produced.
Production of containers increased
by over 18 per cent. A large part of
open-top sanitary cans was absorbed
by the food preservation industry
while the rest catered to the needs of
industries like oils, paints, confectionery, etc.
After providing
for
taxation Rs
8.58 lakhs as against Rs 2.95 lakhs
in 1962-63, the net profit rose to Rs
4.26 lakhs (Rs 2.11 lakhs). The higher
profit has enabled the Directors to
turn a larger amount of Rs 1.66 lakhs
(Rs 40,000) to General Reserve and to
step up the dividend to 10 per cent
(7 per cent). The Current year's results are expected to be even more
satisfactory.
The Company has at present factories at Delhi and Bombay. Soon the
Company will be having a new factory
at Thana and has planned to put up
factories at Cochin and Ghaziabad.
When these factories start production,
the Company will be able to overcome
the disadvantages of having only one
manufacturing centre, such as long
transport, high packing costs to various markets in distant parts of India
and w i l l be in a much better position
to cater to the needs of local regional
demand.
Besides meeting
the defence requirements of the country, the Company was also successful in supplying
during the year containers to exporters
of goods valued at about Rs 20 lakhs.
The Company is, however, handicapped by the irregular supply of tin plates,
sometimes more and sometimes less.
and this is said to be upsetting the
manufacturing schedule of the Company.
The Company is launching a large
expansion plan for which it is raising
its capital from Rs 25 lakhs to Rs
110 lakhs and will be borrowing from
banks and financial institutions to the
tune of Rs 165 lakhs. Along with its
associate, Kaira Can. i t will have four
modern plants combining the latest
techniques, and located
in strategic
centres to cater to the different parts
of the country and produce for exports etc.
Borosil Glass Works
BOROSIL Glass Works set up for
the manufacture of scientific,
laboratory, industrial and pharmaceutical glass and glassware has commissioned its first furnace recently at its
Marol Plant. It manufactures "Corning" brand neutral and heat resisting
glass tubing from 5 mm to 150 mm in
diameter. In addition to tubing 'he
furnace will also produce various laboratory glassware and other apparatus
requiring low co-efficient of expansion
glass. The expansion of production of
these items will cut down glass imports considerably. The Company is
hopeful of being able to compete in
World markets.
Poysha Industrial
P O Y S H A Industrial made satisfactory progress during the year
ended March 31, 1964. The Company
is presently engaged in the manufacture of a wide variety of containers
ranging from simple slip-cover cans
1969