Current Economic Statistics and Review For the
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Theme
of the week: Performance of Private Corporate Sector
The
economic reform programme of the 1990’s has placed tremendous challenges
before The private corporate sector comprises financial and non-financial enterprises in the private sector and manufacturing and production of goods and services are under taken by the latter category of enterprises. This non-financial private corporate sector is dominated by public limited companies rather than private limited ones. During the period of 1990’s a series of liberalisation and relaxation measures as a part of economic reforms were undertaken for the benefit of the private corporate sector as referred to above. Against this backdrop the study has analysed the performance of the sector in post-reform period through a series of financial indicators of which some are explained below. The RBI study covers companies of different sizes, classified according to the size of paid-up capital and also of different industry group. The study based its analysis on the performance of the non-government non-financial public limited companies, which are published annually by DESACS, RBI. Patterns
of Income, Expenditure and Profitability On an average, the annual growth in sales and gross profits of the private corporate sector during the 12 years, from 1990-91 to 2002-03 stood at 11.7 per cent and 10.2 per cent, respectively. The reduction in sales growth rate generally led to reduction in gross profits. The growth rate of sales peaked at 23.7 per cent in 1995-96 after which there was a slowdown to 6.1 per cent in 1998-99. The sales growth picked up to 11.2 per cent in 1999-2000 but again started declining and reached -1.3 per cent in 2001-02. Though, sales registered a negative growth gross profits turned to be positive in 2001-02. The gross profits registered an impressive growth in 1994-95 and 1995-96, to the tune of 31.7 per cent in 1994-95 and 31 per cent in 1995-96. The gross profits increased by 9.0 per cent in 1999-2000 after registering negative growth rates in the three consecutive years, namely, 1996-97, 1997-98 and 1998-99 and by 9.8 per cent in 2002-03. The
profit margin on sales moved in a range from 10.1 per cent to 14.2 per
cent, touching its peak in 1995-96 (Chart 1). The effective tax rate (tax
provision as percentage of profit before tax) declined from 36.5 per cent
in 1991-92 to 19.7 per cent in 1995-96 and showed an upward movement after
1995-96; through fluctuations to touch a peak of 36 per cent in 2001-02.
Cost
structure The cost structure revealed a decline in shares of manufacturing expenses and wage bill in value of production over the years. The share of manufacturing expenses in value of production was in the range of 63.6 per cent to 65.5 per cent during the period under review; touched the peak of 65.5 per cent in 1992-93 and ended the period at 64.6 per cent. On the other hand, the share of wage bill in value of production ranged between a high of 9.2 per cent in 1991-92 and 1992-93 and a low of 7.7 per cent in 1995-96. It increased to 8.7 per cent in 1998-99, but later declined to 8.0 per cent in 2002-03. The interest cost measured in terms of interest payments as percentage of total expenditure (including depreciation and interest) declined from the peak of 6.8 per cent in 1992-93 to 5.4 per cent in 1995-96. The ratio increased to 6.5 per cent in 1998-99 and subsequently declined to 5.0 per cent in 2002-03 (Chart 2). The interest burden on gross profits (interest paid as percentage of gross profits) declined from 62.7 per cent in 1992-93 to 36.9 per cent in 1995-96, but subsequently increased to 61.2 per cent in 1998-99. It varied in the narrow range from 58.3 per cent to 61.2 per cent during the period from 1998-99 to 2001-02. However, it dipped sharply to 47.9 per cent in 2002-03, might be due to debt restructuring by corporates. The dividend rate was the highest at 23.0 per cent in 1995-96, thereafter declined to 15.5 per cent in 1998-99 and subsequently increased to 18.8 per cent in 2002-03.
The companies tried to reduce the inventory cost as reflected by the inventory to sales ratio. This ratio steadily declined from 26.1 per cent in 1992-93 to 17.9 per cent in 2000-01, which marginally increased to 19.5 per cent in 2002-03. The increasing trends in short-term bank borrowings to inventories indicated that in late 1990’s, the reliance of companies on bank finances had increased to meet their working capital requirement. As seen in Chart 3 the ratio went up to 77.6 per cent in 1998-99, which declined to 71.3 per cent in 2001-02. It was at 75.6 per cent in 2002-03.
Pattern of liabilities The total net assets/liabilities of the private corporate sector increased at an average annual rate of 13.4 per cent during the period from 1990-91 to 2002-03. However, during the last three years of the period under study, the annual growth was less than 5.0 per cent. The composition of total liabilities during the period under review is given below in Table 1.
The ‘borrowings’ was the major constituent of total liabilities followed by ‘Reserves and Surplus’ and ‘Trade dues and current liabilities’ during the period under review. ‘Borrowings’ constituted 36.7 per cent to 43.3 per cent, ‘Reserves and Surplus’ accounted for 22.1 per cent to 34.1 per cent in 1995-96 and share of trade dues and other current liabilities in total liabilities ranged between 25.5 per cent and 18.6 per cent.
The debt-equity ratio declined continuously from 99.5 per cent in 1991-92 to 58.7 per cent in 1995-96 (Chart 4). Thereafter, the ratio moved up steadily to 68.4 per cent in 1999-2000. However, in 2002-03, it declined to stand at 64.7 per cent. Among the sources of borrowings, the preference to bank borrowings increased during the period under review. The share of bank borrowings in total borrowing increased steadily from 27.5 per cent in 1993-94 to 43.5 per cent in 2002-03. Pattern
of assets Table 2 depicts the composition of assets for the period under study. Net fixed assets constituted 42.2 per cent of the total net assets in 1991-92. This share moved up to 49.0 per cent in 1997-98 and subsequently declined to 45.8 per cent in 2002-03.
From
1991-92 onwards there has been significant decline in the share of
inventory in total assets. The fall was sharp between 1992-93 and 1993-94
by 4 per cent. Thus, the share of inventory stock declined from 22.4 per
cent in 1991-92 to 12.5 per cent in 1998-99. Thereafter, the share
marginally increased to 14.5 per cent in 2002-03. Another important
component of total assets, the ‘loans and advances and other debtor
balances’ accounted for about one-fourth of total assets during the
period under review and its share fluctuated in a narrow range. The share
of current assets in total net assets declined steadily from 53.8 per cent
in 1991-92 to 43.1 per cent in 1997-98 and was at 44.4 per cent in
2002-03. The quick ratio increased from 50.2 per cent in 1991-92 to 62.4
per cent in 1994-95 but afterwards declined steadily, to 45.7 per cent in
2002-03. The rate of return on investment was the highest at 10.9 per cent
in 1995-96, which declined to 7.1 per cent in 1998-99. Thereafter, it
moved in a narrow range of 7.3 per cent to 7.7 per cent. Sources
of funds The sources for financing of assets formation showed that companies relied more on external funds up to 1999-2000 (Table 3).
The data reveal that the external sources of funds constituted upto 70 per cent of the total assets formation in early nineties, which declined to around 60 per cent in 1999-2000. There was a sudden dip in the share of external funds in 2000-01 to around 40 per cent, which further declined thereafter (Chart 5). Among the external sources, the contribution of equity issues peaked at 41.6 per cent and 38.9 per cent in the years 1993-94 and 1994-95. This reduced to 12.6 per cent in 1997-98 and again increased to 36.6 per cent in 1999-2000. The share of borrowing as a source of funds was declined over the period from 41.2 per cent in 1991-92 to 1.4 per cent in 2002-03 after touching a peak of 44.8 per cent in 1997-98.
Among the internal sources reserves and surplus accounted for 56.9 per cent in the year 1995-96 and it declined to 17.6 per cent in 2000-01. The share of reserves and surplus was at 15.9 per cent in 2002-03. Provisions, mainly comprised of depreciation, accounted for 69.7 per cent of internal sources in 1992-93, which declined to 38.9 per cent in 1994-95 but subsequently increased to 128.3 per cent in 2001-02. Uses
of funds Table
4 reveals the composition of uses of funds. The growth of gross
fixed assets, which peaked at 21.8 per cent in 1995-96, declined gradually
to 5.3 per cent in 2000-01 and stood at 5.5 per cent in 2002-03.
The share of inventory formation in total uses of funds, which was at 17.2 per cent in 1992-93, has decreased to 1.3 per cent in 1998-99, but subsequently increased to 11.7 per cent in 2000-01. The inventories recorded a fall in its share in total funds during 2001-02. It increased to 17.2 per cent in 2002-03. The share of ‘loans and advances and other debtor balances’ in total use of funds was high at around 28.0 per cent in 1991-92 and 1994-95, which dipped in subsequent two years and stood at 10.7 per cent in 2002-03. The share of financial investment in total uses of funds was at 15.1 per cent in 1993-94 and 1994-95, when the secondary market was in boom. The share was very low at 3.9 per cent in 1995-96. However, the share increased to 25.5 per cent in 1999-2000 and 30.1 per cent in 2002-03. Size
group-wise performance The
number of selected companies in the four size groups classified according
to paid up capital for the period 1991-92 to 2002-03 are given in Table 5.
The size wise analysis indicated that the average annual growth in sales,
bank borrowings, gross fixed assets, inventories, total net assets, etc.
during the period under study was higher for higher size groups (Table 6).
The average annual growth in gross profits followed the similar trend
except for the size group ‘below Rs 1 crore’, which has higher growth
than the size group ‘Rs
1 crore – Rs 5 crore’ and ‘Rs 5 crore – Rs 25 crore’.
The year wise growth in sales followed similar trends across all size groups. It was the highest at 25 per cent for companies in the size group ‘Rs 5 crore – Rs 25 crore’ in 1995-96 and the lowest at -3.7 per cent for size group ‘below Rs 1 crore’ in 1997-98. The growth in gross profits was the highest at 44.2 per cent for companies ‘below Rs 1 crore’ in 2002-03 and was the lowest at -24.9 per cent in 2000-01 for the same group. The profitability trends showed that companies in the size group of ‘Rs 25 crore and above’ had recorded the higher profit margin during the period under study. The effective tax varied as per the size group of companies classified according to paid up capital (Chart 6). The rate was lowest for the highest paid-up capital size group and the effective rate was generally high for companies in the smallest size group during the period under review. The effective tax was the highest at 67.7 per cent in 2001-02 for companies ‘below Rs 1 crore’ and lowest at 16.5 per cent in 1994-95 for the companies of ‘Rs 25 crore and above’.
The dividend rate (ordinary dividends as percentage of ordinary total paid-up capital) recorded the increasing trend for companies in the size group ‘below Rs 1 crore’ during the period from 1991-92 to 2000-01 expect 1998-99. It was highest at 40.8 per cent in 2000-01 for companies ‘below Rs 1 crore’. Size group companies in range of ‘Rs 1 crore- Rs 5 crore’ recorded the lowest rate at 10.1 per cent in 2002-03. The share of wage bill in value of production was higher for companies in the size group ‘below Rs 1 crore’ as compared to that of companies in other size groups as shown in the Chart 7 given below. The share of wage bill in value of production was highest at 13.2 per cent in 2000-01 for companies in group of ‘below Rs 1 crore’ whereas it was lowest at 7.0 per cent for companies with paid up capital ‘Rs 25 crore and above’ in the same year. The share of wage bill was less than 10 per cent for companies in the size group ‘Rs 5 crore – Rs 25 crore’ and below 9 per cent for companies in the size group of ‘above Rs 25 crore’.
The share of depreciation provision in total expenditure showed marginal decline in almost all the groups upto 1995-96 and moved upwards thereafter. It was highest at 6.6 per cent in 2001-02 for companies in largest size group and the lowest at 2 per cent in 1997-98 for companies ‘below Rs 1 crore’. The share of depreciation in total expenditure was always higher for companies of ‘Rs 25 crore and above’ in comparison to other size. The share of interest payments in total expenditure was the lowest at 3.3 per cent for the companies with paid-up capital ‘Rs 1 crore – Rs 5 crore’ in 2002-03 and also for companies ‘below Rs 1 crore’ in 1997-98. The share of interest payment in total expenditure was comparatively higher for the companies in the size group ‘Rs 25 crore and above’ during the period under study. The
interest burden was lowest at 33.5 per cent in 1995-96 for the companies
with paid-up capital ‘Rs 25 crore and above and the highest at 81.8 per
cent in 2001-02 for the companies of ‘below Rs 1 crore’ (Chart 8).
Till 1995-96, the interest burden was the highest for companies with
paid-up capital ‘below Rs 1 crore’. But, during 1997-98 and 1999-2000,
it was the lowest for the same size group.
The share of borrowings in total liabilities was the highest for companies having paid up capital ‘Rs 25 crore and above’ and lowest for companies having paid up capital ‘below Rs 1 crore’ during the period under review. From 1997-98 onwards, the share is higher for high paid up capital size companies. Prior to 1997-98, the share was higher for companies in the size group ‘Rs 1 crore – Rs 5 crore’ than the companies in the size group ‘Rs 5 crore – Rs 25 crore’. The share of bank borrowings in total borrowings was higher for lower size group companies and it lowers with increase in paid-up capital size. However, in the later period of 2001-02 and 2002-03, the share for companies in the paid-up capital for group ‘below Rs 1 crore’ was lower as compared to companies of ‘Rs 1 crore – Rs 5 crore’. The share of bank borrowings in total liabilities was the highest at 63.3 per cent in 2002-03 for companies of ‘Rs 1 crore – Rs 5 crore’ and the share was lowest at 20.6 per cent in 1993-94 for companies in the group of ‘Rs 25 crore and above’. Large companies appears to be at better position in raising the funds through issuance of debentures. The debt to equity ratio declined from 90.6 per cent in 1991-92 to 33.6 per cent in 1998-99 and moved upto 49.1 per cent in 2000-01 but stood at lower ratio of 34.8 per cent in 2002-03 for companies of ‘below Rs 1 crore’. The ratio for companies of ‘Rs 25 crore and above’ was more than those of other size group during the period under review. The share of inventories in total assets decreased with the increase in the size group according to paid-up capital from 1991-92 to 1997-98. The share of inventories in total net assets was highest at 31.9 per cent in 1991-92 for companies of ‘below Rs 1 crore’ and lowest at 9.7 per cent in 1998-99 for companies of ‘Rs 25 crore and above’. The inventories to sales ratio declined from 28.2 per cent in 1992-93 to 16.2 per cent in 2000-01 for companies of size group Rs 25 crore and above. In contrast, the ratio increased to 25 per cent in 2001-02 from 15.7 per cent in 1997-98 for companies having paid-up capital ‘below Rs 1 crore’. The inventories to sales ratio was highest at 28.2 per cent in 1992-93 for companies having paid-up capital ‘Rs 25 crore and above’ and lowest at 15.7 per cent in 1997-98 for companies having paid-up capital ‘below Rs 1 crore’. The quick ratio (quick assets as percentage of current liabilities) was highest at 68.1 per cent in 1994-95 for companies in the size group of ‘Rs 25 crore and above’ and it declined to 43.3 per cent in 2002-03. The ratio was lowest at 40.2 per cent in 1991-92 for companies in the size group ‘below Rs 1 crore’. From 1997-98 onwards, the companies in the group ‘Rs 25 crore and above’ recorded the least value for the quick ratio. Conclusion The financial performance of the private corporate sector as viewed through public limited companies revealed highly impressive growth rate in sales and gross profit during 1994-95 and 1995-96 over and above the good performance registered during the years 1991-92 to 1993-94. The buoyant condition in which companies operated during the years 1993-94 and 1994-95 facilitated them to earn more profits and declare high dividend to the shareholders. The profitability ratios such as gross profit margin and return on shareholders equity were high in the years 1994-95 and 1995-96. The effective tax rate was comparatively lower in the years 1994-95 and 1995-96 in comparison with other years under review. However, this accelerated growth of the sector could not be sustained. The analysis indicates deceleration in overall performance of the sector in the later half of the study period (1996-97 onwards). The sluggish growth in income adversely affected the profitability of the selected companies at the aggregate level. The gross profit declined from the year 1996-97 for three years, resulting in negative growth rate in pre-tax profits and post tax profits. The profits started recording positive growth from 2000-01 onwards. The companies continued to place a greater reliance on external sources for financing the asset formation, however, the reliance was lower during the later part of the period under review. The depreciation provision accounted for the major share of the internal funds generated by the companies. The companies thrived to reduce the inventory cost by improving their inventory management as reflected by the declining trend in inventory to sales ratio during the period under review. Reference Reserve
Bank of *
[This note is prepared by Vidya Kanitkar under the guidance of
Abhilasha Maheshwari.]
Highlights of Current Economic Scene AGRICULTURE The
food ministry has released an additional 1.5 lakh tonne of wheat for open
market sale to bulk consumers in selected areas for the period of
January-February 2006 to check rising wheat prices in these areas. The proposal of providing direct subsidy or fertiliser coupons to farmers has been discarded by the department of fertilisers (DoF) on the grounds that an effective rural delivery system does not exist. The working group on new pricing scheme had suggested the proposal, which was to be implemented in three districts as a pilot project from April 1, 2006. After phasing out of quotas there has been a rise in textile orders, but domestic textile machinery manufacturers are unable to provide the required machinery to meet this rise in textile demand. Hence, the central government is planning to liberalise import of textile machinery and encourage joint ventures for domestic manufacturing to meet the shortfall. According to the textile ministry, the sector needs Rs 1,40,000 crore of investment by 2010 of which Rs 70,000 crore would be for machinery. Apart from easing imports the government is trying to form strategies to attract foreign direct investment in to the sector. According
to the Spices Board, garlic exports from the country have augmented to
21,000 tonne in April-December 2006 compared with 1,168 tonne in the same
period a year ago in terms of volume and to Rs 245 million compared with
Rs 36.60 million in the previous year in terms of value. Indian exports
have shot up due to poor crop in Taking into account the importance of fisheries’ sector in the country’s overall development, the Centre has planned to set up Fisheries Development Board (NFDB). NFDB would be set to provide financial support to the fishermen to improve their boats and nets. The board would set up fish processing industries, a chain of cold storages and infrastructure for effective marketing. INFRASTRUCTURE
Petroleum,
Petroleum Products and Natural Gas
The
Prime Minister has constituted a task force for petroleum, chemicals and
petrochemicals investment regions (PCPIRs) aimed at ensuring quick and
coordinated decision-making and providing an appropriate policy framework
for the development of these investment regions of requisite scale and
level. The regions would involve world-class developers and investors. Cement The
cement industry has witnessed a robust growth of 8.7 per cent in volume
terms during the third quarter of the current financial year and about 10
per cent rise in dispatches in the first nine months of the year despite a
small drop in exports and excessive rains in the south. Transport The
railway ministry is planning to set up seven special purpose vehicles for
funding port connectivity projects for NHDP under the aegis of rail vikas
nigam limited (RVNL). These would
include, Hastavaram-Krishnapatnam (worth Rs 473 crore for 129 km new
line), Surat-Hajira (worth 130 crore, for 30 km new line),
Haridaspur-Paradip (worth Rs 280 crore for 78 km new line), Bhildi-
Samdari (worth 231 crore for 1400 km line), Bharuch-Samni-Dahej (worth Rs
161 crore for 62 km), Arsikeri-Hasan-Mangalore (worth Rs 170 crore for 236
km), and Gandhidham-Palanpur (worth Rs 453 crore, for 313 km). Apart from
this, RVNL already has a SPV by the name of Kutch Railway Company. INFLATION
The annual point-to-point inflation rate based on wholesale price index (WPI) has gone up to 4.40 per cent for the week ended January 14, 2006 from 4.24 per cent during the previous week. The inflation rate was higher at 5.48 per cent in the corresponding week last year. The WPI in the week under review has risen marginally by 0.1 per cent to 197 from 196.9 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has declined by 0.2 per cent to 194.4 from the previous week’s level of 194.7, due to a decline in the price index of food articles. The index of food articles has gone down by 0.2 per cent to 196.2 from 196.6 in the last week, mainly due to lower prices of arhar, fish-marine, barley, tea and fruits and vegetables. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has also declined a tad to 311 from 311.2 from the previous weeks level. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen marginally by 0.1 per cent to 172.4 from the previous week’s level of 172.2, mainly due to incerased prices of food products, textiles, ‘chemical and chemical products’, ‘non-metallic mineral products’ and base metals. The latest final index of WPI for the week ended November 19, 2005 has been revised downwards; as a result both, the absolute index and the implied inflation rate declined to 198 and 4.27 per cent respectively, as compared to their provisional week’s level of 198.1 and 4.32 per cent, respectively. Overall,
the rate of inflation has remained reasonably contained in the range of 4
to 4.5 per cent in last two months, within acceptable limits. Moreover,
the Reserve Bank of BANKING The
Reserve Bank of India (RBI) has imposed fines ranging from Rs 5 lakh to Rs
20 lakh on seven banks for their role in the recent manipulation of the
initial public offer (IPO) allotment process. The fines are as follows:
The RBI has also prohibited banks from crediting account-payee cheques to the account of any person other than the payee named in the cheque. The RBI has accused the seven banks of violating its regulations on customer identification in opening of savings, current and demat accounts, breaching prudent banking practices and facilitating the misuse of IPO finance to ineligible borrowers. The fine was imposed in the exercise of powers vested in the RBI under the provisions of Section 47 A (1) (b) of the Banking Regulation Act, 1949. The decision to impose penalty was taken after giving the defaulting banks an opportunity to make oral submissions on January 20 and 21, 2006. These banks will have to publish the penalties imposed by the central bank in their 2005-06 annual report. They will also be required to make this public when they enter the capital market in future. Indian Overseas Bank (IOB), tainted by the IPO allotment scam, has withdrawn the powers delegated to branches to sanction loans for purchase of shares in public issues. The bank has tightened the norms for funding of purchases of shares in public issues, including initial public offers (IPOs). The public issue funding branches will now only receive loan applications and the power to sanction the loan has been centralised at the head office in Chennai. It has already initiated a disciplinary action against the manager of its branch in Ahmedabad for the bank’s involvement in the IPO allotment imbroglio. To achieve greater financial inclusion and provision of financial services in North Eastern (NE) region, the RBI has set up a committee under the chairmanship of Deputy Governor, Ms. Usha Thorat. The committee would review the action taken so for in extending banking coverage and increasing the flow of credit in NE region, identify the bottlenecks in the extension of financial services, in particular, timely and smooth flow of credit in the region. The
finance ministry has given the public sector bank Indian Overseas Bank (IOB)
the green signal to acquire Bharat Overseas Bank – an unlisted private
bank owned by 7 banks. The deal is expected to happen before March 31,
2006. The RBI will examine the legal aspects of a state-owned bank
acquiring a private bank without the latter being placed under moratorium.
IOB owns 30 per cent in Bharat Overseas Bank. The other stockholders are
Bank of Rajasthan (16 per cent), ING Vysya Bank (14.66 per cent), Federal
Bank (10.67 per cent), Karur Vysya Bank (10 per cent), South Indian Bank
(10 per cent) and Karnataka Bank (8.67 per cent). The RBI has decided to allow multi-state co-operative societies engaged in manufacturing activity to raise external commercial borrowings (ECBs). Entities such as National Dairy Development Board and Khadi Gram Vikas Kendra are some examples of some multi-state co-operative societies. The central bank in its notification stated that it would consider the proposals from these societies under the approval route, provided that the co-operative society is financially solvent. Secondly, the RBI has made it mandatory for these applications to submit their latest audited balance sheet. It is also imperative that the proposal compiles with all other parameters of ECB guidelines. These include norms related to the recognised lender, permitted end-use, average maturity period and all-in-cost ceiling. The decision has been made, keeping in view recent developments and representations received from various organisations. Ganesh
Bank of Kurundwad (GBK) based at Kurundwad in PUBLIC
FINANCE The bidding for the second phase of private FM radio for 21 cities spread across western zone took place on January 27, 2006. In all, 116 bids were received for 68 frequencies. Of these, 62 bids prima facie qualified. Revenue of Rs 87.15 crore by way of one time entry fee (OTEF) will be raised from the bidding. FINANCIAL
MARKET 1.
Capital Markets Primary
Market Following the Sebi reports regarding the recent misuse of IPO process by certain individuals, the RBI has issued a notification prohibiting commercial banks from crediting proceeds from account payee cheques to third party account. RBI has accordingly directed the banks that they should not collect account payee cheques for any other person other than the payee constituent. Where the drawee/payee instructs the bank to credit the proceeds of collection to any account other than that of the payee., the instruction being contrary tot he intended inherent character of the ‘account payee’ cheque, bank should ask the drawer/payee to have the cheque or the account payee mandate thereon withdrawn by the drawer. This instruction would also apply with respect to the cheque drawn by a bank payable to another bank. Jagran Prakashan Limited is tapping the market by issuing 10,039,020 equity shares of Rs 10 each with a price band of Rs 270 to Rs 324 per equity share. The issue closes on January 31. Entertainment
Network India Ltd tapped the market by issuing 1.32 crore shares through
100 per cent book-building process of Rs 10 each in a price band of
Rs 144-162 per share. The issue closes on January 27. Secondary
Market A robust FII inflows in the economy couple with good results for December quarter has helped the BSE sensex as well as NSE S & P CNX Nifty to close higher as compared with its previous close. The sensex rose by 349.83 points at 9870.79 points and nifty rose by 81.80 points at 2982.75 points. Moreover, four sectoral indices PSU, Auto, Mid-Cap and Capital Good index also closed the week at record high level. The BSE PSU closed at 5,621.41 points, BSE Auto at 4,512.29 points, BSE Mid-Cap at 4,778.85 points and BSE Capital Goods at 6,921.70 points. On January 25, firm global markets and impressive corporate results coupled with short covering in the derivative segment saw the BSE sensex as well as NSE S & P CNX Nifty closing at new all-time high levels. The sensex closed at 9,685.74 points while nifty closed at 2,940.35 points. Meanwhile, the combined cash and derivatives market turnover of BSE and NSE touched Rs 49,318 crore. This turnover figure comprised of cash market turnover of BSE and NSE and the derivatives segment’s turnover of NSE alone. Since the beginning of the calendar year 2006, the FIIs have been net buyers of equity to the extent of Rs 2,338.90 crore with purchase worth Rs 28576.90 crore and sale of Rs 26238 crore. Meanwhile, since the beginning of the calendar year 2006 the mutual funds have been net seller of equities to the extent of Rs 1368.01 crore with purchases worth Rs 7145.21 crore and sales of Rs 8513.22 crore. Derivatives During the week under review, the daily turnover of NSE’s F & O segment has ranged between Rs 21,289 crore and Rs 35,637 crore. Meanwhile, the stock futures daily turnover ranged between Rs 12,543 crore and Rs 22,417 crore. 2.
Government Securities Market Primary
Market During the week, the RBI has mopped up Rs 653.08 crore through 91-day treasury bills with a cut-off yield of 6.6877 per cent under the regular auction; while RBI has rejected all the bids that it received under the 182-day treasury bills auction. Secondary Market The market reacted strongly to the unexpected hike in both the reverse repo rate and repo rate by 25 basis points to 5.5 per cent 6.5 per cent, respectively. The call rates surged to 7-7.25 per cent as against 6.40-6.60 in the previous week. Tightness in the liquidity was evident from the daily average repo bids that rose to Rs 20,638 crore from Rs 16,165 crore in the previous week. While the daily average reverse repo bids fell to Rs 279 crore from Rs 440 crore. The weighted average YTM of 8.07 per cent 2017 paper rose to 7.3919 per cent on January 27 from 7.2083 per cent on January 20. Bond
Market RBI has issued draft guidelines to banks for raising capital funds through the issue of innovative perpetual debt instruments for inclusion as Tier I capital; debt capital instruments eligible for inclusion as Upper Tier II capital; perpetual non-cumulative preference share eligible for inclusion as Tier I capital; and redeemable cumulative preference shares eligible for inclusion as Tier II capital. With
a view to permit banks in 3.
Foreign Exchange Market The rupee started the week on a weaker note amid pressure of rising international crude oil prices. However, rally int he stocks across the world as well as robust FII inflow int he domestic equity market boosted the market sentiments. Further the surprise interest rate hike by RBI also helped the rupee movement. During the week the rupee stood at Rs 44.15 per dollar as compared with Rs 44.24 per dollar int he previous week. In the forward premia market, the six-month forward premia closed at 2.72 per cent as against 2.15 per cent in the previous week. 4.
Commodities Futures Derivatives The Food and Agriculture Organisation (FAO) has raised its forecast for global paddy production in 2005 by 7 million tonne to 622 million tonne, 2.6 per cent higher than in 2004. This can be attributed to the improvement in the production prospects of several of the major rice producing countries. CREDIT
RATING Icra has reaffirmed the ‘A1+’rating to the Rs 2,000 million short-term debt programme of Kotak Securities Limited (KSL). The agency has, also, reaffirmed an ‘LAA’rating to the Rs 250 million long-term debt programme of KSL. The ratings factor in KSL’s strong institutional and retail equity broking business, its adequate capitalisation, strong liquidity and the sound risk management systems employed by the company. Icra
has reaffirmed the ‘LAAA’ rating assigned to the Rs 20 billion
outstanding bond issue of NTPC. It has also assigned an ‘IrAAA’ rating
to the issuer ratings of NTPC .The ratings reflects NTPC’s dominant
position in the Indian power sector, a very diversified customer base and
its cost competitiveness, arising out of superior operational efficiencies
and proximity of its coal-based plants to pit heads. The ratings are also
supported by NTPC’s strong financial position as reflected in low
gearing and healthy coverage indicators. Icra
has retained the ‘ Icra
has assigned an ‘A1+’rating to the Rs 30 billion (enhanced from Rs 15
billion) certificate of deposits programme of Indian branches of ABN Amro
Bank N. V. (ABN). The rating is supported by the comfortable liquidity
profile of the Indian operations and factors in the strong demand deposit
base and committed credit lines from domestic nationalised banks. ABN’s
Indian operations are characterised by retail assets franchise; corporate
credit to global multinational organisations with Icra
has assigned the ‘LAAA’ rating to the Rs 7.5 billion long-term
subordinate bonds of State Bank of Icra has assigned an ‘A1+’ rating to the short-term debt / commercial paper programme of Essel Mining & Industries Limited (Essel), for Rs 4 billion (enhanced from Rs 2 billion). The rating reflects Essel’s healthy profitability driven by the upturn in the domestic and international steel industries, conservative capital structure, and the strength of the A. V. Birla group (particularly given the recent increase in exposure to group /associate companies). The agency has assigned an ‘LAA’ rating to the Rs 500 million subordinated debt programme of Sundaram Home Finance.The rating carries a “Stable” outlook. Further, the ratings are supported by the company’s strong parentage and the improvement achieved in its asset quality through persistent initiatives. CORPORATE
SECTOR Reliance
Life Science, the medical biotechnology company of the Reliance Group, is
setting up Bajaj
Hindustan has planned a capital expenditure of Rs 700 crore. As per the
plan, the company will set up a green field plant with a cane crushing
capacity of 5,000 tonne per day. Also, its distillery capacity will be
increased to 800-kilo litre (KL) a day from 320 KL. The capacity of the
unit can be increased to 7000 tonne crushed per day (TCD) with a 10-mega
watt co-generation plant at an estimated Rs 200 crore. With the new Kesar
Enterprises, a Kilachand group company, has planned Rs 197 crore expansion
plan. The company is planning to expand and modernise its sugar plant. It
will also increase its storage capacity and set up a power plant. The
company will spend Rs 90 crore on expansion of sugar capacity, Rs 70 crore
on a 25-mega watt co-generation power plant and Rs 37 crore on storage
capacity at Kandla and Spenta
International, manufacturer and exporters of cotton socks in A consortium of Larsen and Toubro and Samsung Heavy Industries company (SHI) – Korea’s leading shipbuilding company, offshore construction and engineering company, has won a contract valued at Rs 2117 crore from Oil and Natural Gas Corporation for the Vasai East Development project to be executed in two years. Marico industries, one of the largest company in the coconut oil segment, has acquired Nihar hair oil brand from Hindustan Lever Limited for over Rs 100 crore. Reliance Capital has reported 67 per cent rise in its net profit for third quarter ended December 2005 to Rs 65 crore over the same period previous year. For the quarter ended December 2005, Titan Industries has posted 24 per cent rise in the net sales to Rs 364 crore over the same period previous year and 88 per cent increase in its net profit to Rs 10.8 crore. BASF India has registered 14.5 per cent increase in its net profit at Rs 11.7 crore for the third quarter of 2005. However, the total income dipped by 4.5 per cent to Rs 182 crore over the corresponding period previous year. Pidilite Industries, manufacturers of adhesives and industrial chemicals, has reported a 20 per cent rise in net profit at Rs 20.2 crore for the third quarter ended December 2005, total income grew by 16 per cent to Rs 242.7 crore. Engineering major ABB has posted a 34 per cent jump in its net profit to touch Rs 94.6 crore for its fourth quarter ended December 2005. The company has witnessed a 49 per cent surge in the orders worth Rs 1016 crore over the same period previous year. Fast moving consumer goods company, Marico Industries has posted 24 per cent increase in its net profit for the third quarter ended December 2005 to Rs 22 crore. Ballarpur Industries has reported 9 per cent rise in the net profit to Rs 47 crore for the second quarter ended December 2005. Total income, however, came down by 1 per cent to Rs 438 crore over the same period previous year. Varun Shipping Company has reported 127 per cent surge in net profit at Rs 53 crore for the quarter ended December 2005. For the quarter ended December 2005, Pantaloon Retail’s net sales has surged by 98 per cent to Rs 472 crore over the same period previous year and it has posted 83 per cent increase in net profit at Rs 18.6 crore. National Aluminium Company’s net sales have gone up by 21 per cent to Rs 1324 crore for the third quarter ended December 2005, likewise, net profit risen by 28 per cent to Rs 393 crore over the same period previous year. For the first quarter ended December 2005, Siemens net sales have galloped by 69 per cent to Rs 851 per cent over the same period previous year and its net profit has augmented by 56 per cent to Rs 49 crore. The BK Birla group owned Century Textiles and Industries has reported an 8 per cent dip in its net profit to Rs 30 crore for the third quarter ended December 2005. Century Enka, manufacturer of nylon and polyester filament yarn, has registered a net loss of Rs 6.8 crore for the third quarter ended December 2005 as compared with net profit of Rs 4 crore for the same quarter previous year. Steel Authority of India Limited (SAIL) has registered 18 per cent decline in the net sales to Rs 6334 crore for the third quarter ended December 2005. The company’s net profit dipped by 55 per cent to Rs 684 crore over the same period previous year due to decline in national and international steel prices and higher prices of inputs mainly coking coal. Arvind Mills net sales has decreased by 5.5 per cent at Rs 390 crore for the third quarter ended December 2005 and its net profit also dipped by 35 per cent to Rs 23 crore over the same period previous year. The shipping Corporation of India’s total income from operations has reported 6 per cent decline to Rs 931 crore for the quarter ended December 2005 also its net profit has dipped by 4 per cent to Rs 268 crore over the same period previous year. Indian Oil Corporation has registered 21 per cent rise in its net sales to Rs 44293 crore for quarter ended December 2005. However, it has posted a net loss of Rs 5.8 crore as against a net profit of Rs 1286 crore over the same period previous year. Rashtriya Chemicals and Fertilisers Limited has posted 6 per cent decline in its net profit to Rs 27.7 crore for October-December 2005. Jet
Airways India has registered a 53 per cent decline in net profit to Rs 61
crore in the third quarter ended December 2005. The company has recently
announced the acquisition of Air Sahara for $ 500 million. It has posted
22 per cent growth in income from operations at Rs 1499 crore for the
third quarter of 2005. The decline is attributed to the huge spurt in
operating expenses. LABOUR According
to the report released by International Labour Organisation (ILO) titled
‘Global Employment Trends, 2005’, despite a robust global GDP growth
rate of about 4.3 per cent in 2005, the total number of unemployed people
stood at 191.8 million at the end of 2005, a rise of 2.2 million since
2004 and 34.4 million since 1995. Another significant trend noticed was
that the services sector saw a higher rate of labour absorption in total
employment across all the regions over the last 10 years, except in West
Asia and Among
various regions, the largest rise in unemployment was seen in Latin
America and the EXTERNAL
SECTOR The Prime Minister’s office has asked the commerce ministry to scrap the Target Plus scheme for rewarding exporters, effective April, 2006, on the ground that it is not WTO compatible. Under Target Plus, exporters are offered duty-free credit on achievement of a specified quantum of incremental export earnings. At the current level of availment, the scheme costs the exchequer Rs 8000 crore. As a first step towards the opening up of retail sector to FDI, the Cabinet Committee on Economic Affairs has approved 51 per cent FDI in “single brand” retail trade. However, all FDI proposals will have to be approved by the Foreign Investment Promotion Board. The Minister for Commerce and Industry clarified that this decision to allow FDI in single-brand retailing was a standalone measure and not a prelude to allowing FDI in retail trade across the board. The government may allow foreign direct investment up to 51 per cent in food retailing in select metros and cities. The
Cabinet Committee on Economic Affairs (CCEA) has approved the setting up
of a Rs 2000 crore National Export Insurance Account to provide export
credit risk cover to large value export transactions and project export.
The account will be maintained and operated by a public trust to be set up
jointly by the department of commerce and export credit guarantee
corporation of India Ltd, on the lines of the Credit Guarantee Trust Fund
for small scale industries. According to Commerce and Industry Minister,
the account would cover With
the exception of the Target Plus scheme, the government has decided to
continue with all other export promotion schemes, including the Vishesh
Krishi Upaj Yojana and Serve-from-India schemes, as they are fully
compliant with the WTO rules. There were some doubts regarding the
continuity of these schemes, as both are subsidies to exporters, hence
actionable at WTO. However,
according to sources a closer look reveals that there is no legal
requirement for scrapping the scheme. TELECOM Bharti Tele-Ventures has posted a 71.14 per cent rise in consolidated net profit at Rs 543.53 crore in third quarter ended December 31, 2005, under the Indian GAAP, as against Rs 317.58 crore recorded during the same period of the previous financial year. The company’s total income has risen to Rs 3045.15 crore during the quarter under review, as against Rs 2171.57 crore registered during the same period a year ago. Hutchison
Essar has entered into a five-year agreement with Nokia under which the
company will run the former’s networks in nine of its 13 telecom circles
in
*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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