Current Economic Statistics and Review For the
Week | |||||||||||||||||||||||||||||||||
Theme
of the week: New Growth Profile based on Buoyant Savings and Investment Levels
Brief
Review: Overall GDP Performance The year 2005-06 marks the third consecutive year of remarkable growth in the Indian economy; the country’s GDP has accelerated by 9 per cent for the year as per the quick estimates of national accounts statistics (NAS) released by the Central Statistical Organisation (CSO). This is much higher than the earlier revised estimate of 8.4 per cent and even higher than the 7.5 per cent growth registered in 2004-05 (Table 1). The current year seems positively poised to take this momentum even further with the advanced estimates for 2006-07 expecting a growth of 9.2 per cent for the current year. In
2005-06, the industrial and services sectors have only about maintained
their growth momentum achieved in the preceding year. Despite, being
buoyed by robust accelerations in the manufacturing and construction
sub-sectors, overall industrial sector growth has been restrained at 9.6
per cent, marginally lower than 9.8 per cent in 2004-05 due to poor
progress in the electricity, gas and water supply as well as the mining
and quarrying sub-sectors. The sluggishness in the latter has been a result of a
fall in crude oil output during the year, following a destructive fire
accident in July 2005 at the Mumbai High oilfields where the production
has been gradually restored only after May 2006.. Concomitantly, the
services sector has witnessed yet another year of upbeat growth, with the
GDP originating in the sector touching Rs 1,409,357 crore, 9.8 per cent
higher than the previous year. The key contributors to this growth have
been: rapid expansion in communications segment, and remarkable
performance of financial services (comprising banking, insurance and real
estate services) given the progressive maturity of the Indian financial
markets and substantive commercial bank credit flows to the housing, real
estate and retail sectors. Interestingly,
and somewhat surprisingly, the impetus to the sharp escalation in overall
GDP growth has emanated in agriculture sector which has spiralled upwards
by a strong 6 per cent as compared to almost nil growth at the end of
2004-05 (Table
1).
This phenomenon
has its basis, partly in the significant progress of the fishing category,
and, more importantly, in the improved performance of the farm sector (a
growth of 6.3 per cent in 2005-06 as compared to a fall of 0.2 per cent in
2004-05).
The
Theme: Soaring Savings and Investment Levels Much more than the estimated 9 per cent growth in real GDP during 2005-06 producing an average growth of 8.33 per cent for the past three years which is indeed commendable, it is the quantum leap in the country’s domestic saving and capital formation rates that are noteworthy in the CSO’s latest release of quick estimates of national accounts statistics (NAS) for the year. Almost for a decade up to 2001-02, saving and investment rates had slipped from the peak attained in the mid-1990’s and stagnated, as per the old series, at around 24 per cent and 26 per cent of GDP at market prices, respectively. Even after the national accounts series were revised which gave a statistical boost to the levels of savings and investment, the saving rate fell from 24.8 per cent in 1999-2000 to 23.5 per cent in 2001-02 and the investment rate dropped rather sharply from 25.9 per cent to 22.9 per cent during the period.
But, after 2001-02, there has occurred a sea-change in the saving and investment scenario. The domestic saving rate has jumped from 23.5 per cent in 2001-02 to 32.4 per cent in 2005-06 and likewise, the investment rate from 22.9 per cent to 33.8 per cent (Table 3). And now, probably based on advance information, the chairman of the Prime Minister’s Economic Advisory Council, Dr. C. Rangarajan, has projected a further sharp rise in the saving rate to 35 per cent during 2006-07 accompanied by a repeat 9 per cent national income growth. Considering that the current account deficit, the counterpart of net capital inflows, would in all probability rise from 1.4 per cent in 2005-06 to 2.0 per cent of GDP, the investment rate in the current year is very likely to be of the order of 37 per cent. For
any inquisitive observer of In respect of the public sector, for instance, apart from head office expenditures of government departments on machines, equipments, furnitures, etc. being treated as capital expenditures instead of consumption expenditures, some parts of the outlays on special government programmes like sarva shikshana abhiyan (SSA), district primary education programmes and mid-day meal schemes, are being treated as capital expenditures. Likewise, in respect of the private corporate sector investment, apart from the inclusion of expenditure on software, etc., investments made by new companies or companies under construction, which were not covered in the previous series, have now been covered. All of these are precisely the ones that seem to have experienced substantial increases in recent years. Apart from data revisions, there have been genuine improvements in the contributions of public and private corporate sectors to the higher saving-investment scene. Public sector savings have arisen following significant reductions in the dissavings of the government administration as mirrored in reducing revenue deficits of the central and state governments. The central government’s revenue deficit has halved from 7 per cent of GDP in 2001-02 to 3.7 per cent in 2004-05 and there are indications that it would further fall to 3.1 per cent in 2005-06 and is budgeted at 2.1 per cent for 2006-07. Almost all state governments have reported reductions in their revenue deficit ratios; the combined revenue deficits of states (as compiled by the RBI) have declined from 1.2 per cent in 2004-05 to 0.5 per cent of GDP each in the two succeeding years. The buoyancy shown in the profitability of the corporate sector is reflected in more than doubling of the corporate savings rate from 3.7 per cent during 2001-02 to 8.1 per cent during 2005-06 (Table 3). More significantly, the level of corporate investment, which had always remained below that of public sector investment, has considerably overshot the latter (Table 4). The private corporate sector investment has also more than doubled from 5.4 per cent in 2001-02 to 12.9 per cent of GDP in 2005-06, whereas the public sector investment has just edged up from 6.9 per cent to 7.4 per cent of GDP despite upward revisions indicated above; this suggests the extent to which the customary investment programmes of the government have taken a back seat despite so much of hype on infrastructure development. A closer look at the pattern of capital formation across major sectors of the economy reveals a continuation of robust investment activity in the service sector industries with the gross capital formation in the sector during 2005-06 at Rs 429,798 crore or 12 per cent of GDP (Table 5), in consonance with the sector’s increasing share in national income from below 50 per cent in 1999-2000 to nearly 55 per cent by the year 2005-06. Commendably, capital formation in the manufacturing sector, which had been trapped at levels below 5 per cent of GDP during the recessionary period, has been gradually inching up since 2002-03 and has crossed even the services sector share to touch 13.6 per cent of GDP in 2005-06, a full 2 percentage points higher than the ratio of 11.6 per cent a year ago. Further, the data reflect the insistent rhetoric of poor capital formation in the agricultural sector; the sector’s gross capital formation as a percentage of GDP has stagnated at below 3 per cent over the years; during 2005-06 it Rs 83,952 crore or 2.4 per cent of GDP. The higher saving and investment rates have a number of implications, both from what could be called their sources and uses sides. On the sources of the rise in savings, household savings have gone up because of the substantial shift in incomes in favour of the middle and richer classes of society. Data on income-tax revenue statistics reveal the phenomenal increases in the number of assessees in income brackets drawing incomes of Rs 1 crore and above per year; growing inequality has become a blatant issue with the economic and social reality today. Incidentally, this is one of the reasons for tax revenue buoyancy seen in recent years. That apart; as for the corporate sector, it has derived significant benefits from reduced incidence of the burdens of corporate taxation and interest cost, which are obviously at the cost of the public exchequer. Despite this, the revenue deficits of the central and state governments are getting reduced due to restrained budgetary allocations for a number of social and infrastructure programmes so as to achieve the goals of Fiscal Responsibility and Budget Management (FRBM) Act 2003.
Some
Caveats The above does not mean that everything is hunky-dory with either the macroeconomic scene or with the data base on NAS. With substantially higher levels of investment each year, the implied incremental capital-output ratio (ICOR) would be much higher than what has been presumed so far. This has cut at the root of a tall claim made in the latest Approach Paper on the 11th Five Year Plan (Planning Commission, June 2006), that India’s investment rates at much lower than those reported in China imply “that we are in a position to achieve comparable rates of growth with a lower ICOR” (p.10). As for the quality of NAS estimates, there are serious questions on series of improvements suggested by the National Statistical Commission (Chairman: C Rangarajan 2001) which largely remain to be implemented by various government departments. Corporate sector statistics as well as industrial output statistics, for instance, are known to be in a shambles. (*
This note has been prepared by Pallavi Oak and Nilopa Shah, drawing
extensively from a forthcoming editorial in the Economic
and Political Weekly by Dr. S.L. Shetty.) Reference: GoI
(2006): Press Note: Quick Estimates
of National Income, Consumption Expenditure, Saving and Capital Formation, 2005-06,
Central Statistical Organisation Highlights of Current Economic Scene AGRICULTURE
The central government has banned milk powder exports, which covers skimmed, whole and all other types of milk powder excluding casein, till September 30, 2007. The decision has been taken in the backdrop of high global prices, triggered by drought in Australia and lower-than-projected milk volumes in New Zealand, coupled with phased reduction of subsidies by the European Union, which have made exports attractive thereby creating short supply in the domestic market flowed by the price hike of the same. At the same time, imports have become expensive, which has forced the government to resort to banning the export of milk powder till end of September 2007. As per the estimates of central organisation for oil industry and trade (COOIT), the rabi oilseeds production is likely to decline by 11.3 lakh tonnes to 91.4 lakh tonnes, mainly due to fall in coverage of the crop by over 10 lakh hectares. With kharif oilseed production also being lower, the total output this season is now projected nearly 20 lakh tonnes lower at 219.8 lakh tonnes. For the kharif season, the production has been estimated at 128.4 lakh tonnes against 137 lakh tonnes last year. Consequently, edible oilseeds and oil prices have witnessed sharp rise in the domestic market. In view of the lower production, imports are expected to surge by over 60 lakh tonnes for both edible and non-edible purpose from 52.8 lakh tonnes last season (November 2005-October 2006). A task force on plantation industry has recommended a mix of subsidy-based insurance scheme at a cost of Rs 720 crore to the exchequer and a market-based scheme to co-exist over a period of five-years. It has enlarged the insurance cover scheme from tea, coffee and rubber to include chilli, ginger, turmeric, pepper and cardamom. The Rs 720-crore insurance cover to small growers would consist of the task force projection of Rs 679.55 crore over the Eleventh Plan as government's financial support for the scheme — split into Rs 64.18 crore, Rs 99.99 crore, Rs 128.51 crore, Rs 177.72 crore and Rs 226.93 crore over the different years. An annual interest accretion of Rs 40 crore would be made available under the PSFS. The
Spices Board has plans to set up a quality evaluation laboratory of
international standard at In order to increase the availability of urea, the cabinet committee on economic affairs (CCEA) has approved the New Pricing Scheme (NPS) phase-III to encourage urea production from the indigenous urea units beyond 100 per cent of their installed capacity by introducing a system of incentives for additional production subject to merit order procurement. Under the new system, the companies would not be required to seek permission for additional production and would also be permitted to retain part of the additional profit generated from additional output. A timeframe of three years has been provided for conversion of all non-gas based urea units to gas-based units. The new policy also encourages setting up of joint venture projects abroad where gas is readily available at reasonable prices. It has also been decided that the Department of Fertilisers would operate a buffer stock through the state institutional agencies and fertiliser companies in major consuming states up to a limit of 5 per cent of their seasonal requirement, to meet unexpected spurt in demands or local shortages. The
sugar mills in Total
exports of spices, registering a marginal rise in terms of volume and
around 31 per cent increase in terms of value, as on December 31, 2006,
have stood at 2,50,528 tonnes valued at Rs 2,335.24 crore against 2,50,431
tonnes worth Rs 1,781.81crore in the same period a year ago. Tight supply
position in the world market of certain spices coupled with increase in
unit value has pushed up the export earnings so far during the fiscal year
2006-07. Apart from the exports of value added products such as curry
powder/paste, mint products and spice oils and oleoresins contributing
over 43 per cent of the total foreign exchange earnings, export of pepper
had also gone up to 20,000 tonnes valued at Rs 203.53 crore as against
12,091 tonnes worth Rs 101.98 crore in April-December 2005. The world
tight supply position and the competitive price The central government has cleared Rs 22,000 crore fertiliser subsidies of the companies and would pay the remaining amount of Rs 12,000 crore by March this year. Paswan said the Department of Fertiliser was pursuing release of Rs 6,000 crore fertiliser subsidy arrears from the Finance Ministry. The
world’s top three cashew producers India, Vietnam and Brazil, have come
together to form a global alliance for promotion of cashew production,
consumption, standardisation of cashew kernel grades, research and
development, and validation of quality. The proposed body would put in
efforts towards increasing the global raw cashew nut production from the
present 1.7 million tonnes per annum to 3 million tonnes by 2020. An
effort would also be made to increase per capita consumption in IndustryAutomobiles
The
automobile sector is set to see an increase in turnover to $ 145 billion
by 2016 from the present $ 35 billion as per the minister of heavy
industries. The Automotive Mission Plan (AMP) 2006-2016 report on the
sector states that to make Textiles
The union minister of state for textiles while appreciating the strength of domestic textile sector and its growth pace has highlighted a need for scaling up capacity of textile machinery manufacturing sector, which is not in a position to meet the industry's machinery requirement, thereby causing huge backlogs in supplies. He has expressed hope that the scheme of integrated textile park (SITP) would be extended to the 11th Plan to enable creation of more textile parks over the next five-year period and so would the technology upgradation fund scheme (TUFS) for the textile sector so as to provide continued capacity building opportunity. Consumer
Electronics
The
consumer electronics and appliances manufacturers association (CEAMA), a
representative of the consumer durables industry of India, has asked the
government to bring down the total level of taxes (inclusive of excise
duty, octroi and VAT) to between 12-17 per cent, from the existing rate of
more than 30 per cent, in order to make the industry globally competitive.
The key industry demands are excise duty cut from 8 per cent to 4 per cent
and correction of inverted duty arising out of free trade
agreements (FTAs) to ensure a level playing field for Indian durable
manufacturers. For instance, there is nil customs duty on colour
televisions imported from Leather
The
leather industry has presented a plan to the central government seeking
its support for capacity expansion and infrastructure development for
export growth, according to the Council for Leather Exports (CLE). The
industry has asked the government to set up 15 small, integrated leather
parks in various leather production centres, extend the `leather sector
modernisation scheme' and develop two centres of excellence for design and
development. Over the next three years, the industry has set itself a
target of doubling exports to generate over a million jobs. The exports in
2006-07 are expected to cross $ 3 billion against $ 2.6 billion last year.
As per teh CLE director, Infrastructure
Power A
500-MW Prototype Fast Breeder Reactor (PFBR), now under construction
nearby Kalpakkam, promises power at Rs 3.20 a unit in 2010, when it will
commence generation. The next set of (two) FBRs planned to be put up at
the complex will deliver electricity at Rs 2.50 a unit. A FBR breeds its
own fuel; therefore, fuel costs are practically zero. Also, since Petroleum,
Petroleum Products and Natural Gas
The domestic oil product sales at 10.5 million tonnes (mt) in December 2006 have registered a moderate increase of 3.9 per cent compared to 10.1 mt in December 2005. According to official sources, during the month there has been a high growth for both motor spirit and high-speed diesel. Since dealers maintained lower inventories in November due to an anticipated price cut, it had a positive impact on sales as they uplifted more to bring inventories to normal levels as per an official. During the month under consideration, while diesel sales have risen by 6.9 per cent to 3.93 mt, petrol sales have gone up by 9.6 per cent to 8,03,600 tonnes. Besides, petrol and diesel sales also saw an increase due to the Supreme Court ruling banning the overloading of trucks, forcing more vehicles on to the roads. For the nine-month period (April-December) of the current financial year, the product sales have risen by 5.2 per cent to 88.2 mt, mainly due to the increase in demand for oil products from the industrial and agricultural sectors. The growth of 5.2 per cent has been far higher than the government expectation of 2.5 per cent annual growth for the financial year. On the import front, oil product imports have accelerated by 66.5 per cent to 1.54 mt while their exports have fallen by 7.3 per cent to 2.12 mt in December. The country has imported 9.1 mt of crude oil as compared with 8.8 mt in the same month a year earlier. For the April-December period, 13.1 mt of oil products have been imported, up by 21.6 per cent from the same period last year. Coal
The
capacity addition of 70,000 mw during the 11th Plan, entailing an
investment of $ 50 billion, may face major hurdles mainly due to shortage
of coal, demand for which is likely to go up 6-7 per cent annually. The
coal ministry has made it clear that the gap between indigenous production
and demand would be 51 million tonne and has added that the achievement of
this target will only be possible if the capacity of captive blocks
allotted to various allocatees is utilised to the optimum level and coal
companies achieve their estimated target. This needs to be monitored by
coal controller and ministry. The ministry has allotted captive coal
blocks to the state-run NTPC, state utilities like MahaGenco and Gujarat
Electricity Board (GEB), and independent power producers like Essar Power.
While coal companies, led by Coal India Ltd (CIL), have been making
efforts to increase production, there should also be concerted efforts on
part of captive mine owners to develop mines fast. NTPC has projected that
the coal production from its captive mine in Jharkhand would be possible
by mid-2008 or early 2009. Similarly, MahaGenco and GEB, which have been
allotted captive coal blocks in the Inflation
A result of inflation fighting measures taken up by the government in terms of increased imports of agricultural products like edible oil and foodgrains, the imports of sensitive commodities have gone up by 11.7 per cent in April-December 2006 at Rs 12,959 crore as compared with Rs 14,472 crore in the same period of 2005. The imports of edible oil have increased to Rs 7,558 crore in April-December 2006 as compared with Rs 6,753 crore in the corresponding period of 2005, mainly due to an increase in import of crude palm oil and its fractions in the first nine months (April-December) of 2006-07 by 44 per cent from the same period of the last fiscal year. Other sensitive items that have witnessed increased imports include products of small scale industries, rubber and marble and granite, alcoholic beverages and milk products. BankingThe
Union Cabinet has given its approval for the transfer of the Reserve Bank
of Financial
Markets Capital
Markets Primary
Market Power
Finance Corporation Ltd, tapped the market between January 31 and February
6 through issue of shares of Rs 10 each in a price band of Rs 73-85 per
share. Secondary
Market The
RBI’s third quarter review of the Annual Monetary Policy was the
highlight of the week. Anticipation of an interest rate hike and other
credit policy measures influenced trading during the week on the stock
exchanges. The market corrected on the first two trading days of the week,
and then bounced back remarkably on the following two. Both the BSE sensex
and the NSE nifty closed at their all-time high levels on Friday, 2
February 2007. The sensex gained 121.05 points (0.84 per cent), from the
closing last week, to 14,403.77. The nifty closed Friday at 4,183.50, up
35.8 points (0.86 per cent) over the previous week’s closing. On Monday,
29 January 2007, the Sensex lost 70.76 points on account of selling in
banking counters. Interest rate sensitive banking shares weakened in the
latter part of trading due to concerns of a rate hike. IT shares were
subdued-to-weak throughout the day. Index heavyweight Reliance Industries
did offer some support to the Sensex by holding strong. The bourses
enjoyed a holiday on Tuesday, 30 January 2007, on account of Moharrum. The
market began Wednesday, 31 January 2007, in the correction mode. The fall
was more severe on the day with a loss of 121.04 points on the Sensex. The
hawkish stance taken by the Reserve Bank of India (RBI) at its monetary
policy review meeting that day cast a shadow on trading. Tata Steel was a
major loser on the day, crashing 10.65 per cent after clinching the Corus
deal, at a valuation deemed expensive by the market. Metal stocks across
the board lost the same day. The break through for the bulls came on
Thursday, when the market soared on the back of RBI’s upgradation of
2006-07 GDP growth forecast to 8.5 - 9.0 per cent from 8 per cent on the
previous day, and the US Federal Reserve’s stance of not raising
interest rates in the absence of any serious pressure on the US
economy.The Sensex closed Thursday with a gain of 176.26 points. Market
experts consider that the gains in the derivatives segment were more so
from short-covering than from a build-up of fresh long positions. There
was no respite to the bull-run on Friday with the telecom and IT stocks
putting on good gains, and the overall market joining in the party. In the
opinion of some market men, the pre-budget rally has now triggered off.
The Sensex gained 136.59 points over the previous day. Both the Sensex and
the Nifty closed at their all-time high levels. The
BSE Mid-Cap index gained a relatively lower 29.22 points than the
Sensex’s gains. The BSE Mid-Cap index ended the week at 6,088.98. The
BSE Small-Cap index, however, ended in the red for the week. It ended at
7,576.13 on Friday, down marginally 15.41 points (0.20 per cent). Tata
Steel finally managed to clinch the Corus deal this week, albeit at
valuations which appear pretty much on the higher side of analyst
estimations. The deal at 608 pence per share values the company at seven
times its forecasted EBITDA earnings. The market reacted to the
development by hammering the stock. Tata Steel's Q3 FY-2007 numbers, in
line with market expectations, did not provide any buffer to the fall in
the share price. It posted a 41.1 per cent growth in net profit in the
December 2006 quarter to Rs 1063.75 crore, on 21.4 per cent growth in net
sales to Rs 4469.98 crore. The stock fell for the week by 9.09 per cent,
to end at Rs 462.95 on Friday. Benchmark
Asset Management Company launched International
rating agency, Standard & Poor’s Ratings Services, today raised its
ratings on six Indian banks and six government-owned entities to
investment grade, following a similar revision in Mid-cap
firms have done well in the December quarter in terms of net profit growth
compared with the Sensex and the small-cap firms. The 164 firms, which are
part of the BSE Mid-Cap Index, have posted an aggregate net growth of 92
per cent compared with 42.7 per cent rise reported by the Sensex firms and
81 per cent by small-cap firms. However, mid-cap firms underperformed the
Sensex and the small-cap firms in terms of sales growth. Total sales
income of mid-cap companies rose 23 per cent, while that of the Sensex and
the small-cap firms rose 35 .5 per cent and 45 per cent, respectively. Derivatives
The
introduction of 26 stock futures during December-end may have boosted
volumes in some of their respective underlying (cash market) stocks in
January, but has hardly contributed to the overall turnover of derivatives
segment. This
has led to analysts questioning the logic about the introduction of
several of these stocks in the F&O segment, especially the ones with
thin liquidity in the cash segment. “Ever since their introduction, they
have formed only about 2.5-3 per cent of the total turnover in the
derivatives segment, which is dismal considering they form nearly 17-18
per cent of the stock futures (roughly 155),” said a derivatives analyst
with a brokerage. Out
of the 26 stock futures introduced, 11 have seen an appreciation in stock
prices. The top five gainers include Praj Industries (70 per cent), Sesa
Goa (38 per cent), Tata Teleservices, Kotak Mahindra Bank and Aban
Offshore-(18-19 per cent each). The other six have returned up to 8 per
cent. Of these 26 stocks, average monthly trading volumes in the cash
segment for 17 of them has jumped sharply in January. Volume in shares of
Praj Industries has risen 660 per cent, Sesa Goa (271 per cent), Tata
Teleservices, Kotak Mahindra Bank, Aban Offshore and GTL (140-190 per
cent). Analyst
are unfazed about the surge in trading volumes. They point out the
improvement in liquidity has been mainly restricted to those stocks where
trading volumes were robust even before these were added to the F&O
list. Though there is no denying that introduction of these stocks has
widened the scope for investors, the feeling is that inclusion of some
would not have made any difference, due to lack of liquidity. “It is
difficult for a common investor to track the trend in all the stock
futures,” said Alex Mathews, head of derivatives research, Geojit
Financial Services. The
Nifty closed at 4183 in the spot market. The February future was held at
4174. The March Nifty was settled at 4176. The February CNX IT was settled
at 5643.85 while the spot traded at 5655. The Bank Nifty was settled at
6111.45 while the spot Bank Nifty was held at 6075. Government
Securities Market
Primary
Market The
cut-off yields for the 91-day and 364-day T-Bill auctioned during the week
were set at 7.5602 per cent
and 7.6985 per cent respectively. RBI
conducted the auction of State Development Loans (SDLs), 2017 for Jammu
& Kashmir for an aggregate amount of Rs.200 crore. The cut-off yield
of security was 7.9500 per cent. The
Government of India have announced the sale (re-issue) of "7.37 per
cent Government Stock 2014" and "8.33 per cent Government Stock
2036" for a notified amount of Rs.6000 crore and Rs.3,000 crore
respectively through a price based auction using multiple price method on
February 9, 2007. Secondary
Market During
the week, the weighted average call rates during the period ranged between
7.74 per cent and 7.87 per cent, while weighted average repo rates ranged
between 6.88 per cent and 7.60 per cent and the weighted average CBLO
rates ranged between 6.98 per cent and 7.48 per cent. The average volumes
of Call, Repo and CBLO segments were Rs.12,266.75 crore, Rs.6,920.31 crore
and Rs.15,050.34 crore respectively. The
daily average outstanding amounts in the LAF (reverse repo) and LAF (repo)
operations conducted during the period were Rs.1408.33 crore and
Rs.9993.33 crore respectively. In
order to guard the spiralling credit growth and inflation, the RBI has
only hiked the repo rate and has left the reverse repo which is perceived
to be the main indicator for interest rates unchanged. This has triggered
a rally in the market. The market participants feel the rally will
continue this week too, albeit in the second half. The government
securities auction will be held on February 9 as per the schedule. This
has dampened the market sentiment to a certain extent. However, market
players feel that once the auction is over, the market will be ready for a
rally since most of the uncertainties till the next monetary policy review
are over. The market also has to start building up the gilts portfolio for
the year-end valuation purpose. RBI
has permitted Scheduled Commercial Banks and Primary Dealers (PDs) to
undertake short sale of Central Government dated securities, subject to
the short position being covered within a maximum period of five trading
days, including the day of trade. In respect of short sales, banks and PDs
shall ensure adherence to the conditions such as: the sale leg as well as
the cover leg of the transaction should be executed only on the Negotiated
Dealing System-Order Matching platform; the sale leg as well as the cover
leg of the transaction should be accounted in the HFT category; under no
circumstances, should participants fail to deliver, on settlement date,
the securities sold short; at no point of time should a bank/PD accumulate
a short position (face value) in any security in the HFT category in
excess of the following limits: 0.25 per cent of the total outstanding
stock issued of each security in case of securities other than liquid
securities and; 0.50 per cent of the total outstanding stock issued of
each security in case of liquid securities; banks and PDs which undertake
short sale transactions shall mark-to-market their entire HFT portfolio,
including the short positions, on a daily basis and account for the
resultant mark-to-market gains / losses as per the relevant guidelines for
marking-to-market of the HFT portfolio; gilt Accounts Holders (GAHs),
under CSGL facility, are not permitted to undertake short sales. Entities
maintaining CSGL Accounts are required to ensure that no short-sale is
undertaken by the GAHs. The
Finance Minister, Mr P. Chidambaram, has said that the Reserve Bank of Bond
Market Some
of the issuers who tap the market include the State Bank of Foreign
Exchange Market In
an attempt to curb the robust growth in the advances granted against
non-resident (external) rupee account [NR(E)RA] and foreign currency
non-resident (banks) [FCNR(B)] deposits the Reserve Bank of India (RBI)
has decided to reduce the interest rate ceilings on these deposits. In the
third quarter review of annual policy for the year 2007-07, RBI has
announced a reduction in the interest rate ceilings on NR(E)RA and FCNR(B)
deposits by 50 basis points and 25 basis points, respectively. The
spot rupee has appreciated from 44.31/32 to a high of 44.06/07 in the week
under review. However, in a bid to stem the strengthening, the RBI has
been continuously intervening to suck out dollars from and infuse the
equivalent amount of rupees into the market. After
long 16 years, global rating agency Standard and Poor’s has raised Commodities
Futures derivatives The
Forward Markets Commission (FMC) has asked the Multi Commodity Exchange (MCX)
to re-align its trading-software vendor empanelment policies. This is to
ensure fair competition among the growing list of manufacturers eyeing the
straight-through processing (STP) or computer-to-computer link (CTCL)
software market created due to fast growth of on-line commodity as well as
stock exchanges. Responding to FMC's order issued earlier this month, MCX
has withdrawn clauses like payment of Rs 1 crore bank guarantee by
aspiring vendors. MCX was previously insisting on bank guarantee in
addition to the industry norm of securing Rs 10 lakh empanelment fee and
annual fees ranging between Rs 2 lakh and 5 lakh. According to sources,
the FMC order came in the wake of a complaint from Omnesys Technologies, a
Mumbai-based software manufacturer. The latter had accused MCX of creating
barriers for empanelment of new vendors. The
National Multi-Commodity Exchange of India (NMCE) is scouting for various
options to activate illiquid commodities on its platform by setting up
marketing and knowledge management bases in the heart of crop-growing
areas. Out of the 61 listed commodities traded at the exchange, 51 are
reportedly illiquid. Recently, the Forward Markets Commission (FMC)
instructed all commodity exchanges to prune the list of illiquid
commodities or activate them. Forward
Markets Commission (FMC) may soon take a final decision on illiquid
commodities trade on comexes was asserted by Kewal Ram, member, FMC. The
commodities market regulator used to permit such trades for a year, which
was brought down to six months, with contracts running from January to
June and July to December. The
regulator had observed in the past that contract designs and feasibility
study by the exchanges needed to be looked at differently. Exchanges kept
on launching some commodities or the other, irrespective of their
availability or interest of traders and consumers, compelling the FMC to
rethink on norms, experts said. Often, after a few days of the launch,
these commodities either fail to attract traders completely or are traded
in very small quantities, leaving the burden of price updates on the
exchanges without generating any substantial returns. Also, the prices of
these commodities move in tandem with their liquid partners or the
movement in the spot market. Usually, if there is no trading on a daily
basis, the prices of illiquid commodities take a direction depending upon
the general market sentiment. Corporate SectorIn
what is widely rated as a landmark in The winner emerged after a nerve-wrecking marathon auction, in which Tatas increased their bid by 33.6 per cent, to winning bid of 608 pence a share, up from its initial offer of 455 pence made in October, to pip CSN's offer of 603 pence. L&T,
Suzlon
Energy has reported 28.8 per cent increase in its profit after tax at Rs
173 crore for the quarter ended December 31, 2006 as compared to Rs 134
crore for the corresponding quarter in the previous year. Recently the
company has secured the first order from an international energy major in BPCL has posted a net profit of Rs 303 crore in the quarter ended December 31, 2006 as against a net loss of Rs 1131 crore in the corresponding quarter in the previous year. Confectionary giant Britannia Industries net profit declined by Rs 19 crore (54 per cent) to Rs 16.4 crore in the third quarter of the current fiscal as compared to Rs 35.7 crore in the corresponding period of the last fiscal. Mahindra
and Mahindra (M&M) through its subsidiary Mahindra Forgings Global Ltd
based in Riding
on the performance of both the parent and group company, M&M Group’s
net profit doubled to Rs 503 crore for the third quarter this year against
Rs 262 crore in the same period last year. Riding on demand boom and escalating cement prices, the net profit for ACC soared to 106 per cent to Rs 358 crore for the quarter ended December 31, 2006 as against Rs 174 crore for the corresponding quarter last year. Information TechnologyTCS
has won a “multi-million-dollar” contract from TelecomState-owned telecom major MTNL has reported about two fold increase in its net profit at Rs 224 crore for the quarter ended December 31, 2006 against Rs 118 crore in the same quarter last year.
*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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