Current Economic Statistics and Review For the
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Theme
of the week: Real Estate Boom in India: Its Ramifications and Sustainability*
An
Overview The term ‘real estate’ is defined as land including the air above it and the ground below it, and any buildings or structures on it. It covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. It involves the activities like sale, purchase and development of land, residential and commercial buildings. By convention, any agricultural and forest land is not a part of real estate. The main players in the real estate market are landlords, developers, builders, construction companies, real estate agents, tenants and buyers. Significance
of Real Estate Sector in Indian Economy
With
the liberalisation of the economy since 1991, the real estate sector in The importance of the real estate sector in Indian economy can be explained in terms of its size, contribution to GDP and it’s strong backward and forward linkages with various other sectors of the economy. According to a report by Ernst and Young (November 2005): · The turnover of the Indian real estate industry is currently estimated at approximately US $ 12 billion (Confirming this, FICCI, have estimated that US $ 10 billion to residential and the rest to be commercial and retail, including shopping malls, hotels and hospitals.) at current exchange rate, this total works out to about Rs 55,000 crore or 1.56 per cent of GDP. · The contribution of real estate services, housing and construction sector to GDP is at around 13 per cent (2003-04). [Further, according to the Confederation of Real Estate Developers’ Association of India (CREDAI), the real estate and construction sector has contributed more than 12 per cent of the GDP in 2005-06. By and large, this has been supported by the Tenth Five-Year Plan (2002-07), by ranking the industry little lower at a contribution of 9.3 per cent of GDP in 2003-04 (Table 1).
It is significant to note that these shares not only include real estate industry, but also construction of wide variety of infrastructure projects like building of dams, bridges, canals etc.] · During 1993-94 to 2003-04, real estate services, housing and construction grew by 14.6 per cent (CAGR). · According to various market studies, the real estate sector has a potential to grow at an estimated 25-30 per cent per annum. · Further, as per estimates, the sector would be worth between US $ 45-50 billion by 2010 with a potential to touch US $ 90 billion in 10 years thereafter.
Backward
and Forward Linkages Apart from these, the sector has solid forward and backward linkages with over 250 associated vital industries of the economy: Backward LinkagesThe
diagram above shows that the real estate industry creates huge investment
demand for core industries and other services sectors in
Forward Linkages
Apart from backward linkages, the real estate sector provides physical infrastructure to various industries such as housing, hospitality and commercial services for creating bases to make these sectors operational. Besides, due to these linkages, the sector is a major employment generator and it claims to be the second only to agriculture. According to ASSOCHAM, the housing component of real estate sector is expected to create 4 million new jobs by 2015. The Chamber has expected demand for 80 million houses coming from the middle and low-income groups, which would require a total investment of US $ 670 billion by 2015. The Chamber projects that India’s annual growth rate of the economy by 2015 would be at around 12 per cent, with housing and real estate growing at 14 per cent per annum to double it’s contribution to GDP from the current level of less than 1 to 1.5 per cent. Currently, the real estate sector has been growing remarkably along with a robust macro-economic scene reflected by the expansionary phase of the Indian economy. II Real
Estate Growth Drivers in the Indian Economy Recent
developments in the real estate sector symbolise the changing face of Following
are the key-factors, which have been responsible for gaining momentum in
the real estate market in the last couple of years: (i)
The
structural changes in the economy characterised by rapid urbanisation and
burgeoning middle class with higher purchasing power especially due to
flourishing IT and ITES industries have fuelled demand for real estate. Developments
in the real estate sector are being influenced by the developments in the
retail, hospitality and entertainment (e.g. hotels, resorts, cinema
theatres) industries, economic services (e.g. hospitals, schools) and
information technology enabled services (ITES) like call centres etc.
All this has changed the consumption basket and spending habits of people.
Similarly, it has
changed aspiration levels of Indian families who have started looking for
better quality of living and modern lifestyle amenities. Not only these, but
the spurt in earnings from stock market investments has also translated in
the real estate investments. (ii)
The
demographic transition with rising proportion of young Indians (what is
called as ‘demographic dividend’) and increasing nuclear families have
also contributed to fuel huge demand for all segments of the real estate
market. Moreover, higher women
work participation rates in both, rural and urban areas have also
contributed to raise standard of living of the middle-class families. The work
participation rate for women, which was 7.18 and 9.74 per cent in 1971 and
1991 respectively, in urban areas, went up to 11.55 in 2001. In rural areas,
the rate has shown steady improvement, it has risen from 15.92 in 1971 to
27.20 in 1991 and to 30.98 in 2001. (Ministry of Labour and Employment)
(iii)
The financial sector reforms and rising gross domestic savings
rate (24.9 per cent in 1999-00 to 29.1 per cent in 2004-05) coupled with
softening interest rates has brought about a surge in demand for consumer
and retail credit. Similarly, availability of fiscal and tax benefits have
added to the consumers’ advantage in opting for home loans. Several
supporting policy measures like tax benefits and reductions in interest
rates have increased the demand for housing loans. The
banks have distinct advantage of low-cost retail funds coupled with high
availability of short-term funds and this gave them an edge. Most banks
found that they can operate with higher spreads even if they offer lower
lending rates. Further, housing finance traditionally has been characterised
by low non-performing assets (NPAs). In addition, banks also have a good
reach through their network of branch offices spread all over the country.
Thus, banks have been eyeing the housing sector as a lucrative option for
higher profit margins and lower risks. During
the period 1996-2005, outstanding housing loans by scheduled commercial
banks grew at a trend rate of 23 per cent per annum. The share of housing
loans in total credit of scheduled commercial banks has increased from 2.8
per cent in March 1996 to 11 per cent in March 2005. Commercial
banks, despite being late entrants have overtaken the housing finance
companies (HFCs) in the home loan market. The share of banks in total home
loan disbursements has risen from 43.6 per cent in the year 2000-01 to 61.1
per cent in 2003-04. For most banks, both in the public sector and private
sector, housing finance forms a huge chunk of their total retail loans. (iv)
Moreover, NRI’s
renewed interest in Indian real estate market has set the growth on the fast
track. It is not just the gulf-based NRIs, but even second generation
Indians in the (v)
In
addition to these, the market has taken speculative turn. Unlike olden days,
where the property or house purchase was aimed at ones’ self-occupancy,
the buyers now invest in property market in order to earn from the market
movements. These factors have changed the whole orientation and the way at
which the real estate market was looked at in the pre-reform period. (vi)
Policy
Initiatives: The government of (vii)
Number of real estate venture capital funds are earning high
returns from real estate investments. While some private funds have applied
for SEBI approval, few have received approvals and have invested in real
estate. This has ensured more availability of funds to the developers and
faster growth of real estate sector. Some examples are HDFC Real Estate
Fund, ICICI-Tishman Speyer, Ascendas India IT Park Fund, Kotak Mahindra
Realty Fund, IDFC, Edelweiss Captial etc. The
above factors essentially reveal that the real estate boom can be attributed
mainly to the two factors: First, the changes in demographic and structural
patterns of the economy and secondly, the ambitious policy reforms
undertaken by the government of III Unprecedented
Growth in Real Estate Prices: Real or Unreal?
Although
a consolidated picture of the price movements in the real estate sector is
not available due to a highly fragmented market structure and variations
depending upon the builder, location and specifications, sharp upward price
trends in various metropolis and tier II cities have been indicative of
increasing cost of properties during the last couple of years. According to
the report of Knight Frank, there has been an appreciation in the wide range
of 20-300 per cent in real estate across Across
all metropolis, the property prices in Mumbai have witnessed one of the
sharpest increases in 2005. For e.g. residential property prices in central
suburbs of Mumbai appreciated by 20 per cent, while prices in western
suburbs and south Mumbai have posted growth of around 30-40 per cent in 2005
(Raheja
Corporation).
This is well supported by the Trammell Crow Meghraj Property Consultants study on real estate prices. The appreciation in property rates in Mumbai at premier locations is shown in Table 2.
According
to Trammell Crow
Meghraj, residential property prices in other metros have also gone up as
shown in Table 3. The property prices in other metros especially, NCT
of Another
notable factor in 2005 was that more and more property developers have moved
to tier-II cities like Pune, Is
the Asset Bubble Sustainable? Historically,
the real estate market has always seen cyclical phases in Apart from the long run demand-pull factors, the short-term factors like increase in the wholesale prices of cement (by 19 per cent and 4 per cent on y-o-y and over the current financial year basis, respectively, as on June 10, 2006) and steel (by more than 7 per cent in the current financial year as on June 10, 2006) has resulted in an increase in the overall construction cost by 15 to 20 per cent in the last couple of months. The overall increase in the construction cost is generally passed on to end-users with varying time frames. IV Issues
and Concerns Following
the recent real estate boom, there have arisen certain issues of concern
that need to be addressed for the healthy development of the market:
(i)
Foreign Direct Investment (FDI) The
decision to liberalise FDI norms in the construction sector is perhaps one
of the most significant economic policy decisions taken by the union
government in the recent period. Until now, only Non-Resident Indians (NRIs)
and Persons of Indian Origin (PIOs) were permitted to invest in the housing
and real estate sectors. Foreign investors other than NRIs were allowed to
invest only in the development of integrated townships and settlements
either through a wholly-owned subsidiary or through a joint venture company
in FDI
is expected to alter the dynamics of the real estate business in
Comparing
(ii)
Private-Public Partnership (PPP) The
model of PPP has become popular recently in the development projects of
housing commercial premises, resorts, educational institutions and
recreational facilities. Ever since the government has allowed 100 per cent
FDI in real estate through the automatic route in 2005, the (iii)
Civic Infrastructure Another
issue that needs to be seriously addressed is the provision of
infrastructure facilities like adequate power, water supply and good roads
and connectivity in the existing complexes or buildings. What makes the
scenario move from ‘unfair’ to ‘grotesque’ is the exceptionally high
real estate prices with poor civic infrastructure (HDFC Newsletter).
The mass construction projects that take place, especially in the outskirts
of cities lack such basic amenities. For instance, connectivity
and accessibility issues in the country's IT hub (iv)
Real Estate Regulator The
unprecedented boom in real estate market has unfortunately resulted in
unregulated growth and at times, manipulative and fraudulent building sector
taking real estate prices to unreasonable heights. Moreover, uncontrolled
builders’ lobbying has also resulted in cartels and thereby price fixation
below which no builder sells his/her properties to buyers.
Such manipulations have brought down middle class affordability
levels. Unfortunately, currently, any household having a decent income level
of around Rs 20 to 25 thousand has to shell out a large part of income as
equated monthly installment (EMI) in buying a house usually for a tenure of
15 to 20 years. Thus, high property prices have regressive impact on current
and future livings of a broad cross-section of the society. Further, these
may widen if prices continue to escalate. Therefore, recently, the
government has prepared a legislation, which will set up an independent
regulatory authority to oversee builders and developers. For this purpose,
the Ministry of Urban Development has proposed the Real Estate Management
(Regulation and Control of Activities) Bill, which would be introduced in
the parliament soon. Under the Bill, certain requisite qualifications have
been prescribed for builders for granting a certificate of registration.
Similarly, promoters will be required to furnish a bank guarantee as a
percentage of the estimated cost of the development works certified by the
authority. The percentage for the bank guarantee would be left to the
respective states. Additionally, the builders and real estate agents would
be required to get registered under the authority and the authority would
hold the rights to cancel their licences if found breaching laws. Apart from
this, the authority would verify the safety of construction. Since land,
housing, registration of chartered engineers and matters related to building
bylaws fall under the jurisdiction of states, the Ministry has decided to
frame a legislation for (v)
Real Estate Price Index: A Proposal Housing
and real estate sectors constitute not only a major proportion of national
wealth but also an important rapidly expanding service sector in the
economy.2 Because both lenders and borrowers may have large real
estate/housing exposures (direct as well indirect), financial balance sheets
may be affected by any wide volatility of
prices in this sector. Thus, it is desirable to monitor housing and real
estate prices — an important segment of asset prices for formulation of
appropriate monetary and fiscal measures. The
National Housing Bank (NHB) has set up a Technical Advisory Group (TAG) to
explore the possibility of constructing a real estate price index.
After reviewing international best practices in terms of the methodology,
sampling techniques and collection of price data for construction of real
estate price indices in some developed countries, the TAG has suggested a
methodology for (vi)
Online Realty Auction Online
real estate trading is fast catching up. With real estate consultants
recommending this medium for its ease and reach, more and more websites are
considering entering the fray. For instance, internet auction site receives
on an average 250 real estate listings per month under categories like
auctions, classifieds and ‘buy it now’ or fixed price. Both, residential
(sale and rental) and commercial properties, are listed on the site, the
largest listings being in the commercial category. These online transactions
are a result of growth of e-commerce in V Summary Real
estate market in For
the healthy growth of the real estate market, the public policy
interventions have to be calibrated and not overarching and bureaucratic.
Such healthy interventions would facilitate the fulfillment of housing
aspirations of the vast middle and professional classes to possess houses as
a necessity rather than as a luxury. Eventually, this would emerge as a
major contribution to the social upward mobility of most sections of the
society. Notes:
1
For Balance of Payments (BOP) accounting,
2
There is a view that ‘construction’ should constitute a part of the
secondary sector and not the tertiary sector. For this, however, it is taken
as a part of the services sector.
References: 1.
Planning
Commission (2002): Tenth Five-Year Plan 2002-07 (Volume II) 2.
Media
Sources 3. Federation of Indian Chambers of Commerce and Industry (FICCI), various reports * This note is prepared by Ms Gauri Ranade
Highlights of Current Economic Scene AGRICULTURE
In order to curtail inflationary pressures, the central government has allowed duty-free import of wheat by private players like flour millers, biscuit manufacturers and bread makers and has halted all exports of pulses, effective from June 22, 2006. It has also given permission for importing sugar at zero per cent duty to restrain the price escalation of this essential commodity. Earlier, though import of wheat and sugar by private players was allowed, it was uneconomical as it used to attract import duty of 50 per cent and 60 per cent, respectively. In response to the 2.2 million tonnes - wheat tender floated by the State Trading Corporation (STC) on June 12, 2006, 8 companies have submitted their bids with the price quotes ranging between $190 to $237 per tonne, cost and freight (C&F). The Australian Wheat Board (AWB), which has got the orders to supply 10 lakh tonnes in the earlier tenders, has not bid this time. Out of these 8 bids STC has short-listed 4 bids - from ADM, Cargill, Glencore and Concordia, which would provide only around 1.5 million tonnes. Glencore had offered to sell 550,000 tonnes of wheat, Cargill 480,000 tonnes, Concordia about 220,000 tonnes and ADM 240,000 tonnes. The other four bids have been rejected on technical grounds. After a break of more than 12 days, the southwest monsoon has revived and is expected to advance from south peninsula towards the northern region of the country. Half of the of the total 36 meteorological sub-divisions in the country have, so far, remained rain deficient and are expected to receive their first monsoon shower at least a week to 10 days behind schedule. This would delay the planting of rain-fed crops, mainly of oilseeds, pulses and coarse cereals. In fact, farmers, in areas that have received scanty rains, have been advised to defer sowing of kharif crops until the next spell of showers by National Centre for Medium Range Weather Forecasting (NCRWF) as the monsoon is not likely to revive during the next seven days in central and western parts of the country. However, farmers in the northeastern and southern regions have been advised to continue with sowing operations. The
central government is set to announce an all-time-high Rs 60 per quintal
increase in the procurement price for paddy during the forthcoming 2006-07
kharif marketing season (October-September). The effective procurement
price for common paddy would be Rs 630 per quintal and that for `Grade A'
paddy Rs 660 per quintal. The minimum support price (MSP) is likely to be
increased by Rs 10 per quintal and in addition to this farmers are
expected to receive a bonus of Rs 50 per quintal to post a hike of Rs 60
per quintal., would be by way of a higher, while farmers are to
additionally The move to hike procurement price substantially comes even
as total rice procurement in the ongoing 2005-06 season has crossed a
record 26 million tonnes. IndustryOverall
The
government has been mulling some reform measures, including labour law
flexibility and single-window clearances, for facilitating investments
into the proposed big-ticket petro hubs called petroleum, chemicals and
petrochemicals investment regions (PCPIRs). The centre is also considering
a customs duty waiver on crude oil imports specifically for these zones.
The PCPIRs, spread over an area of 100-250 square kms, are expected to be
set up through private-public partnerships and each zone is likely to
include a refinery and petrochemical plant with downstream chemical units.
States such as Karnataka, West Bengal, Orissa, After the petroleum, chemicals and petrochemicals investment regions, the government is considering investment regions for the manufacturing sector. After discussions between National Association of Manufacturers (NAM), USA and an Indian delegation led by the minister of state for industry accompanied by chief secretaries of four states — West Bengal, Gujarat, Andhra Pradesh and Karnataka. The government is considering setting up five such regions spread across 100 square kms under a model for public-private partnership (PPP). Within the investment regions, special economic zones (SEZs) could be included and the project could be combined with e-governance. The states had not been identified as yet and the process would depend on incentives being offered by them. It is ikely that the manufacturing investment regions would follow the same policy as the PCPIRs, where the central government had decided in principle to set up chemical hubs in regions which already had large chemical and petrochemical units. Textiles
With private investments picking up in the textile sector, investments under the government’s technology upgrade fund scheme (Tufs) are providing the industry with the much-needed impetus to touch the targeted investment level of Rs 1,40,000 crore by 2010. With the amount sanctioned under the Tufs doubling each year since 2002-03 to 2005-06, the industry is optimistic of meeting the targeted investment requirement of Rs 70,000 crore by 2010. The total investments required from 2002-2010 have been estimated at Rs 1,40,000 crore. Since the scheme, which provides an interest subsidy on loans taken by industry for modernisation, covers about 50 per cent of total investments, as per the current trend, investments enabled by the Tufs could easily reach the targeted Rs 70,000 crore well before 2010. Leather
Most
large footwear exporters are on an expansion spree with capacities
expected to grow by 50 per cent during 2006-07. The expansion is to cater
to existing markets - Indian exporters have traditionally focussed on
men's shoes and the European market - as well as to tap new markets,
including the US, and new segments such as women's shoes and children's
shoes. According to the Council for Leather Exports, InfrastructurePower
Well
over five years into the power sector reforms process, a majority of state
electricity boards continue to flout the mandatory fiscal prudence norm of
making annual tariff revision filings before their respective regulators.
Despite the financial mess, only 4 states - Andhra Pradesh, Petroleum and Petroleum ProductsCrude oil production in May 2006 has risen by 1 per cent, post the recovery of output at Oil and Natural Gas Corporation (ONGC) from an area destroyed by fire in July 2005. The exploration and production companies have produced 2.86 million tonnes of crude oil in May compared with 2.83 mt produced during same period last year. The natural gas output has risen by 1.4 per cent to 2.78 billion cubic meters in the same period. Following rising demand for diesel and gasoline, the state refiners have processed 11.58 million tonnes of crude oil in May 2006 - a 12 per cent increase from the 10.35 million tonnes processed in the same month a year ago. Coal
The
government has allotted 19 coal blocks with estimated reserves of 7.396
billion tonnes to 18 state government undertakings in 12 states and 1 to
the central public sector MMTC Ltd., in an attempt to speed up
industrialisation in these states. The 19 blocks are spread over West
Bengal, Chhattisgarh, Jharkhand, Madhya Pradesh, Shipping
With
the global and Indian offshore rig market facing a surge in demand in the
wake of increased offshore oil exploration activities, shipping companies
have been diverting investments from ships to rigs. The companies have
also been investing to acquire other offshore assets, such as drill ships
and supply vessels. The demand-supply imbalance in the rig market is
primarily due to under-investment for years at a global level. In Aviation
Air India Express, the low cost airline from Air India, is expected to see a drop in its fuel bill during the current fiscal year since the Finance Ministry has specified that the aviation turbine fuel (ATF) for its international flights would be considered as "deemed exports" and hence the airline would not be required to pay any sales tax to the states. The move would help boost operating profit of the low cost airline, resulting in an annual savings of between Rs 20 and Rs 25 crore, on the estimated annual sales tax outgo of the airline on fuel. InflationThe annual point-to-point inflation rate based on wholesale price index (WPI) has gone up to 5.24 per cent for the week ended June 10, 2006 from 4.72 per cent during the previous week. The inflation rate was lower at 4.50 per cent in the corresponding week last year. The
WPI in the week under review has increased by 0.5 per cent to 203 from
201.9 in the previous week (Base: 1993-94=100). The index of ‘primary
articles’ group (weight 22.02 per cent) has risen by 0.2 per cent to
202.7 from the previous week’s level of 202.2, mainly due to an increase
in the price index of ‘food articles’ and ‘non-food articles’ by
0.1 per cent and 0.4 per cent, respectively, as compared to the previous
week. The index of ‘food
articles’ has gone up to 207 from 206.7 in the previous week, mainly due
to the higher prices of jowar, eggs, arhar, condiments and spices, gram,
wheat, moong and fish-inland. The index of non-food articles has gone up
to 179.6 from 178.8 for the previous week, mainly due to the higher prices
of raw rubber, The latest final index of WPI for the week ended April 15, 2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 198.8 and 3.70 per cent as against their provisional levels of 198.5 and 3.55 per cent, respectively. BankingIn
dividend payout, private sector banks continue to outperform state-run
banks. A comparison between 11 private sector and 23 government-owned
banks shows that the former performed better in terms of dividend to net
profit ratio during the financial year 2005-06. RBI has raised the cap on
banks’ dividend-payout ratio from 33.33 to 40 per cent. In the case of
private sector banks, dividend to net profit ratio at the aggregate level
showed a marginal decrease during 2005-06 as compared to that of 2004-05.
In case of public sector banks, dividend to net profit ratio increased
marginally. But the ratio was higher in private sector banks compared to
their public sector counterpart during both the time period. The aggregate
total net profit of 11 private sector banks has increased by 21.7 per cent
from Rs 3,581 crore in 2004-05 to Rs 4,359 crore in 2005-06. Their total
equity dividend has increased by 18.2 per cent during the study period,
leading to a drop in the equity dividend to net profit ratio from 32.39
per cent in 2004-05 to 31.46 per
cent in 2005-06. On the other hand, the total dividend payment on 23 PSBs
increased by 23.1 per cent to Rs 3,212 crore during 2005-06 from the level
of Rs 2,609 crore in 2004-05. The aggregate total net profit of 23 PSBs
has increased by 5.3 per cent from Rs 14,758 crore in 2004-05 to Rs 15,539
crore in 2005-06. And the equity dividend to net profit ratio increased
from 17.68 per cent to 20.67 per dent during the study period. Among the
23 PSBs, one bank, State Bank of
The RBI has received BS 7799 certification for two of its important work areas of internal debt management and external investments and operations handled by its Internal Debt Management Department and Department of External Investments and Operations respectively. Financial
Sector
Capital
Markets
Primary Market During the week, a unique development took place in the primary issuance market as Vigneshwara Exports and Bluplast Industries, on June 21, decided to scrap their respective IPO after stock market downfall soured investor’s demand. Vigneshwara Exports 4.76 million share offering was just about fully subscribed after the company cut the price band earlier this month to Rs 110-124 a share from Rs 121-140 has decided not to go ahead with the listing. Meanwhile, Bluplast has also abandoned its 11 million share offering at Rs 28-32 because of poor demand and has decided to seek funding from private equity investors Secondary
Market During the week, the
market continued its northward journey amidst positive sentiments and
value buying at lower levels, however, on June 20 sensex lost 175 points
due to weak Asian and FIIs continued to remain
net buyers in the equity market to the extent of Rs 303.3 crore with
purchases worth Rs 8863 crore and sales of Rs 8559.6 crore. Meanwhile, the
mutual funds continued to offload in the equity market as they sold Rs
125.89 crore for the week ended June 24, 2006. DerivativesDuring the week, the
total turnover at the NSE’s F & O segment registered a marginal
increase to Rs 117610 crore as compared to Rs 113346 crore for the week
ended June 16, however, the daily average total turnover declined to Rs
19601.67 crore as against Rs 22669 crore in the previous week. As usual,
stock futures continued to contribute bulk of the trading at Rs 55413
crore and index futures turnover stood at Rs 46286 crore. Government Securities Market Primary MarketThe RBI, under the
regular auction, mopped up Rs 1681.86 crore and Rs 2915.83 crore through
91-day treasury bills and 364-day treasury bills; the cut-off yields for
91-day treasury bills and 364-day treasury bills were 6.3149 per cent and
7.0513 per cent, respectively. Meanwhile, RBI also
conducted the sale (re-issue) of 7.37 per cent 2014 government dated
security and 7.94 per cent 2021 government dated security for a notified
amount of Rs 5,000 crore and Rs 4,000 crore respectively. The cut-off
yields for 8-year paper and 15-year paper was set 7.9171 per cent and
8.4573 per cent, respectively. Secondary
Market The secondary market for
government securities remained subdued throughout the week. The RBI
auction announcement, wherein as against the market expectations of
reduction in the maturity tenure of the scheduled dated securities, RBI
increased the notified amount of auction to Rs 5,000 crore through 7.37
per cent 2014 paper and Rs 4,000 crore through 7.94 per cent 2021 paper on
June 22 adversely affected the market sentiments. Further, the rise in the
inflation figures to 5.24 per cent for week ended June 10 as compared to
4.72 per cent for the week ended June 3 also sparked speculations over
another rate hike by the RBI. The weighted YTM of 7.59 per cent 2016 paper
rose to 7.9608 per cent on June 23 as compared to 7.8021 per cent on June
16. Meanwhile, the 1-11 year YTM spread has decreased by 13 basis points
to 93 basis points. During
the week, owing to the surplus liquidity in the market the call rates
traded around the reverse repo rate to close flat at 5.75-5.89 per cent.
Further, on account of available liquidity in the market, borrowing
requirements by the banks to meet the gilts auction outflows as well as to
provide mandatory reserve targets remained low. The daily average
outstanding amount in the LAF (reverse repo) operations conducted by RBI
stood at Rs 39246 crore. Meanwhile, according to the RBI (Amendment) Bill
2006, which has been amended and came into force, the CRR will remain
unchanged at 5 per cent and RBI will no longer be paying interest on CRR
balances of scheduled commercial banks with effect from June 24. Bond
Market During
the week, the sharp increase in the domestic inflation rate and the
RBI’s announcement of increasing the auction amount to Rs 9000 crore
adversely affected the corporate bond yields as it inched up by 10-15
basis points. The triple –A 5-year benchmark yield rose to 8.46 per cent
from its previous closing of 8.33 per cent. Foreign
Exchange Market
In the forex market, the
spot rupee lost around 23 paise to close the week at Rs 46.12/13 per
dollar after opening at Rs 45.90 per dollar. The weakness in the domestic
currency can be mainly attributed to dollar outflows, huge dollar demand
by oil companies and dollar’s rise against other major foreign
currencies. Initially, during the week, the rupee edged up against dollar
drawing support from yen’s rally, following speculations that Bank of
Japan would hike interest rates as early as July. However, the dollar’s
rebound against other major currencies coupled with sustained dollar
demands from importers pulled down the rupee below Rs 46 per dollar level.
But, the domestic currency recovered on rallying stock market towards the
end of week. In the forward premia market, the premia edged up sharply
with the six-month annualised forward premia closing at 1.26 per cent on
June 23 as compared 0.96 per cent on June 16. Commodities
Futures Derivatives
NCDEX has withdrawn Sugar
S (Vashi) contracts with immediate effect owing to poor trading interest,
Sugar S (Kolkatta) will, however, continue for the next three months. In a
circular the exchange said that there has been no trades for Sugar S (Vashi)
since the beginning of April this year and, hence, after seeking
permission from the FMC, which it has granted to the exchange on June 14,
NCDEX has withdrawn the contract on June 20. During the week, the
mentha oil futures on MCX in the early trades crossed the upper circuit of
4 per cent on an up trend in the spot market and strong overseas demand.
The July contract perked up to Rs 468 per kg, while the August contract
surged to Rs 477 kg- finally closing at Rs
465.6 and Rs 475.8 respectively, each contract gained about 3 per
cent. A similar gain was witnessed in the physical market where mentha oil
jumped more than 4 per cent intra-day and about 7 per cent since June
19,MCX may consider levy special margin if the trend continues. Meanwhile,
the price rise is mainly attributed to no leftover from the last year’s
stock, rising local demand and high speculative buying on futures
exchanges InsuranceSBI Life Insurance Company Ltd has announced a total of 9 per cent return on Lifelong Pension scheme, a simple annual bonus of 5 per cent in addition to the guaranteed return of 4 per cent per annum for all policies in force as on March 31, 2006. All bonuses declared here are a percentage of the effective Sum Assured and not linked to the premium component. Credit RatingsCARE has assigned ‘PR1’ rating to the proposed commercial paper programme of H & R Johnson India Limited (HRJ) for an amount of Rs 50 crore. The rating factors in experienced and professional management, market leadership position in ceramic tile industry, presence in all segments of tiles and sanitary wares, robust growth and positive outlook for ceramic tiles industry. CARE has assigned ‘PR1’ rating to the proposed short-term debt (including commercial paper) programme upto Rs 25 crore of South Asian Petrochem Limited (SAPL). The assigned rating draws comfort from the satisfactory track record and long experience of promoters, strong technology back up, high capacity utilisation, production of high quality PET resins having international accreditation. ICRA has assigned an ‘IrA’ issuer rating to the Bangalore Electric Supply Company Limited (BESCOM). The rating reflects the company’s track record of profitable operations, limited debt repayment obligation in the medium term, hitherto limited dependence on subsidy support from the government of Karnataka, its superior demographic profile and reasonable success in its ability to meet the regulatory targets set by the Karnataka Electricity Regulatory Commission (KERC). ICRA has retained the ‘A1+’ rating assigned to the Rs. 25 Crore commercial paper programme of Narmada Chematur Petrochemicals Limited (NCPL). The rating reflects NCPL’s strong position in the domestic market, favourable demand potential for its products, lowered financial risk profile arising from improved capital structure and support from its parent company GNFC. Corporate SectorAccording to Society of Indian Automobile Manufacturers, car exports during April-May 2006 has augmented by 30 per cent to 31,360 units as against 23,964 units in the previous year. On the two-wheeler side motorbikes continued their strong growth momentum in the overseas market with exports growing at 43 per cent at 84,005 units as against 58,584 units. However, exports of scooter and scooerettees have declined by 33 per cent at 9,405 units against 14,196 units. Export of commercial vehicles, during April-May 2006; have risen by 27 per cent to 6,218 units against 4,896 units. Strong demand for vehicles of Tata Motors and Ashok Leyland has fuelled the demand for Indian commercial vehicles in the foreign market. Era Constructions India Limited has secured order or Rs 17.7 crore from National Aluminium Company Limited for the construction work at its alumina refinery in Orissa. ABG
Shipyard has secured an order of Rs 48 crore from Lamnalco Limited, Reliance
Infocomm’s international network transport and communication service
providing company, Flag Telecom, has secured Deutsche Telekom’s
bandwidth contract worth $ 80-100 million. The order is to buy bandwidth
under the sea between Europe and the Radico Khaitan, India’s second largest liquor company, has formed a 50:50 joint venture through its wholly-owned overseas subsidiary Radico Global with UK based distillery SPS. LabourThe government is likely to set up the Sixth Pay Commission to revise wages of its employees in July 2006. However, the detailed terms of reference has not been yet worked out. The government has ensured that unlike the adverse impact on state finances after the introduction of the Fifth Pay Commission, the centre and states would have minimum financial burden after the introduction of Sixth Pay Commission. Information TechnologyEDS
has completed the acquisition of majority stake in Mphasis BFL Ltd. EDS
acquired 83 million shares, amounting close to 52 per cent equity stake in
the applications and BPO services, company for approximately $380 million
in cash. Mphasis will operate as an independent EDS company and the latter
planned to ramp up the total TCS has signed a deal with two new customers in the Latin American market with a total deal value of over $30 million. The first deal is a five-year contract with a leading banking and financial group and the second deal is for managing the BPO and IT operations for Transantiago, the modernized integrated public transportation system planned for the Chile’s capital city, Santiago. TelecomCommunications
equipment major Nokia will shift the hub of its global telecom network
management services business from its home base 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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