The devaluation of Brazil's currency had its impact on stock exchanges across the world and India is no exception. Kerb deals on Wednesday suggested that the market will be weak on Thursday. However, as far as India is concerned, the impact will be much more severe in commodities.

Devaluation of the real will make Brazilian exports more competitive as compared to India. Among the commodities that will be most hit are coffee, pepper, soyabean and edible oils. Pepper prices on the Kochi bourses dropped by as much as Rs 600 per quintal in a single day from Rs 20,400 per quintal to Rs 19,800 per quintal. Brazil is the largest producer of pepper after the country. Its proximity to the US, which is also one of the major destination for Indian pepper, is likely to affect the country's exports.

The other market that has taken a hit is the soyabean oils market. Bombay Oilseeds and Oil Exchange president Navinbhai Shah said that the only oil that will be affected is soyabean oil. Though the country imports its requirement from Argentina and the US, the devaluation will make Brazil more competitive. Soyabean oil and seed prices fell on the oilseeds exchange. Traders say that international prices of soyabean are likely to drop further, specially since the crop has been good both in the US and in Argentina.

Coffee prices too are expected to drop as Brazil is the largest producer of the commodity. However, prices on the futures exchange in Bangalore shot up from Rs 99 per kg (plantation variety) to Rs 104 per kg. This is one of the highest rise in the short history of the exchange, which at best sees a volatility of Rs 2-3 per kg.

Another commodity that is likely to be affected by the devaluation is palmolein oil. It is said that imports of the oil is likely to shift from Malaysia to Brazil, if Malaysian exporters do not cut their prices.

Sugar Imports

News reports indicate that the Government has finally consented to increase the basic duty on sugar imports to 20 per cent. The 15 percentage points increase, though lower than the 35 percentage points rise demanded by the industry, will go a long way in improving the sagging bottomlines of local manufacturers.

Sugar is being imported into the country at a f.o.b. rate of $218-219 per tonne. Transportation costs work out to an average of around $30 per tonne. Add to this the $12.50 basic import duty at the existing 5 per cent and the $20 (Rs 850) per tonne countervailing duty. The landed cost of imported sugar, therefore, works out about $280 or Rs 11,900 per tonne. On the other hand, the cost of manufacturing sugar domestically works out to an average of around Rs 13,000 per tonne. Domestic producers have an obligation to sell 40 per cent of their produce at a levy price of Rs 10,220 per tonne and the prevailing ex-factory price for free-sale sugar is Rs 13,000 per tonne. Hence, while importers are able to earn a profit of Rs 1,100 per tonne on their sales, domestic producers loose around the same amount per tonne of sugar sold. Their average realisation based on the 40:60 ratio for levy-sugar and free-sale sugar, works out to about Rs 11,888 per tonne.

At a 20 per cent basic import duty, other figures remaining constant, the landed cost of imported sugar will work out to about Rs 13,300 per tonne. Assuming that the importer will be unwilling to sell at less than a 10 per cent margin, the ex-factory free-sale price can be expected to rise to Rs 14,650 per tonne. The latest CMIE statistics show that sugar output in the current financial year is likely to be around 150 lakh tonnes, just about enough to satisfy domestic demand. This will only aid the price rise. If the ex-factory price for free-sale sugar rises to Rs 14,650 per tonne, it would result in an average realisation of about Rs 12,900 per tonne. With this losses of most domestic producers will fall drastically and the more efficient producers will even be able to make profits.

The implications of the increase in import duty on sugar have not been lost to the stock markets. Most sugar stocks registered gains on the bourses despite an overall scenario of market pessimism.

Reliance-IPCL

News reports suggest that Reliance has picked up a 4 per cent stake in the public-sector private sector giant, IPCL. This move coincides with the Government's decision to reduce its stake in IPCL from around 64 per cent to 25 per cent. The Centre has also said that the earlier stance that the Government will divest only if there is no monopoly being created has been removed. This has cleared the stage for Reliance to at least bid for the divestment.

Whether Reliance will be able to buy out the Government's stake or not, is a thing of the future. However, by increasing its stake in the company to at least 10 per cent, it can have a say in the matters of the company even if someone else manages to buy out the Centre stake.

It is rumoured that apart from Reliance, some multinationals are also interested in picking up stake in the PSU. However, there are some cash-rich local firms like Bombay Dyeing which will be interested in picking up Government's stake. It will be a backward integration for the company for its DMT unit. Besides, it will be able to get a ready access to the polymer market, an area in which it will directly compete with Reliance.

(With contributions from Shishir Asthana & Sarad Saraf)