Current Economic Statistics and Review For the
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Theme
of the week:
Working of Commodities Futures Markets
There
had been an interesting debate on the merits and demerits of the working
of the commodity futures market in Its
interesting to observe that the MS and SJ have chosen to say that ‘the
commodity futures market has been viewed quiet unfavourable’ in the KNK
articles though its author is the very person who recommended introduction
of futures market in the country in his landmark report on commodity
futures market in It is a widely held view that commodity futures market benefit the farmers through the price discovery process. But, its growth trajectory in the past few years has given rise to a number of issues, which have remained unresolved; these are the issues that we are endeavouring to put forward in this note. Doubts have arisen in terms of commodity coverage, presentation of statistical results without presenting basic data, usage of truncated data which camouflage the distinct shallowness of the market. In addition, there has been no reference being made to the various commodity bodies that have put-forward their concerns and continuous issues during the settlement. Usually, in the initial stages of a market’s development, it is liable to drift; and it is in the interest of the market and the community at large that these issues are sorted out and a more refined development path chartered. Instead, there is a plea for allowing the exchanges to operate as they have been doing rather than making an attempt to reforming or changing the current operational style, so that the health of the market improves. Speculation
and Participation The view of KNK that futures markets as they operate now are purely speculative because there are very few end-users of commodities; this has been refuted by the authors by presenting the ratios of utilized hedge limits to open interest in case of six commodities for a particular date. According to the authors, the hedge limits
have been utilised by the market participants and they are being given these limits who are able to prove to the exchange that they are users of the commodity. The tabular data given by the authors show ratios of utilised hedge limit to open interest, in respect of six commodities for particular date are reproduced here in Table 1. There are two issues which are required to be raised here. First, to measure the relative size of utilized hedge limit, the ratio should have to be in relation to the traded amount and not to the size of open interest which will always be puny and which will hence give a high ratio purporting to prove that the hedgers have a large role. On the other hand, this ratio may not be high if it is in relation to the traded amount. Secondly, it is unclear as to why the authors have not included the top traded commodities namely Chana, Guarseed and Jeera. As is evident from Table 1.A which we have culled out from the members’ newsletter of NCDEX, high trading interest is in above commodities, where as the authors have, interestingly included commodities, which have relatively lower trading volumes and in which there are some obvious hedging interests. Moreover, statistically ratios can be a very deceiving tool as it camouflages a lot of data diversity. It would be of great benefit if actual figures are made public and then it should be left to the readers to apply statistical tools to arrive at studied conclusions.
Further, the claim that there is a huge hedging interest in the futures market would be better appreciated if the exchanges provide this information as a matter of routine reporting along with the definitions and criteria set for defining hedging interest as against speculative interest. The
second issue pertains to the significance of speculators. MS and SJ have
endeavoured to explain in
detail the role played by speculators and their significance. But, it
appears that they have missed the point made by KNK as he had said that
‘the basic point is: the dominance of the speculator-financial interests
in futures gets accentuated by structural and institutional weaknesses and
barriers preventing participation of cultivators’ and further he quotes
Pilbeam (2005) that it is inherent in the character of the futures markets
that “like other financial instruments, futures and forward markets can
be used for both managing risks and assuming speculative position,s. In
addition, he says that ‘it
would be facile to suppose that even without their participation, the
outcomes of the futures market can be beneficial for the farmers or small
traders who stock and supply the cereals to the consumers all round the
year’(pp 1167). Next, the authors have accepted that small farmers are not directly participating on the exchanges because of the contract size and lack of understanding of intricate details of trading on exchanges. Yet, they are emphasising the indirect role played by their price dissemination efforts which no doubt will be beneficial for those with greater holding powers while its success will be unusually slow for these small farmers unless they are made direct beneficiaries of the system. Further, MS and SJ have in their article highlighted the findings of A C Nielsen’s study (2007), titled ‘Executive Report on Brand Awareness’ for the NCDEX shows that farmers in vicinity of commodity-centric towns are aware of the NCDEX and futures trading. This implies that the concerns of KNK have been valid as the awareness of futures trading in commodity-centric towns has been high even in the absence of the futures trading. Price,
Volume and Delivery The third issue pertains to price volatility as KNK had concurred with the widely held belief that prices have become more volatile with the advent of futures trading in the country. The authors have sought to refute this belief by presenting information on annual average price volatility for wheat, sugar, chana and maize for the two periods of 2001-04 (pre-futures) and 2004-06 (post-futures). Their results are reproduced here in Table 2. It is not clear as to what is the nature of prices used by the authors. If it is the spot price of the concerned exchange, it becomes worth mentioning first that NCDEX , as per their website, was incorporated on April 2003 and began operations on December 15, 2003. That being so, what are the pre-futures prices being compared in the table ?
Secondly, it is unclear as to why urad and guar seed has been excluded from this list; these experience the largest volumes on the exchange most of the times. Finally, if their claim were valid then it would be in the interest of the commodity futures market to publish these details on a regular basis and with detail price information rather than estimational methods that are widely known. The fourth area of confusion is with respect to the volumes traded on exchanges. The association of high volumes to supplies the authors argue, is being considered erroneously as though that there is something amiss in the market. MS and SJ further say that a high multiple trading is not alarming. They explain the concept of open interest and link it with total availability of the commodity in the country and suggest that it has been very low. They conclude that ‘it is not possible for these high volumes to have an impact on price movements as it is the open interest position that ultimately drives the prices’. While the relevant data are published by the exchanges in the bhav copy and commodity-wise query, but analysing that information on a daily basis is a very cumbersome process. It would be a great help if the exchanges provide daily a table of traded value along with hedging interest as well as open interest to gauge the speculative element in it. The
fifth issue highlighted
relates to low deliveries. The authors argue that world over deliveries
are low and that it is so because of the high costs involved in using
exchange mechanism for delivery; moreover, the genuine users of
commodities use exchanges for hedging and not delivery. This point is well
taken. But it is unclear whether the deliveries witnessed on NCDEX are
above the norm. The facts disseminated without juxtaposing trading with
deliveries.This is precisely so because FMC publishes data for trading and
NCDEX independently puts out data for deliveries. If we put them together
for the month of February, then the total traded volume stands at 20569205
MT and deliveries as given by the exchange stand at 16651 MT excluding
gold, silver and mentha oil which are given as 160875 KG. In the Indian
case, deliveries are not even one per cent.
The sixth issue concerns the propagation of trading in commodities
based its strong economic rationale. The economic rationale is not doubted
provided the trading ensures a realistic balance between speculation and
genuine hedging, between trading and deliveries, and between trading and
open interest. The trading ceases to have any sound economic rationale if
the balance is overwhelmingly tilting towards speculation. The decision
making processes in India have not inspired confidence in the minds of
well-meaning professionals like KNK that economic rationale has been the
driving force in permitting trading in as many as 95 agricultural
commodities and what is more in not insisting on healthy distinction
between speculation and hedging. Moreover, internationally most of the
exchanges offer very few commodities unlike in the Indian exchanges. For
instance, in the Spot Prices and Futures Trading The seventh area of concern relates to the absence of link between spot prices and futures prices as argued by KNK. In this connection, MS and SJ have attributed the price rise to supply factors, which is undoubtedly accepted by all and the sharp spurt witnessed in prices in some of the commodities has been due to shortfall in production. With the help of data presented in Table 3, they have sought to infer that the inflation spurt has been due to some shortfall in production of many food items and not because of futures trading.
Though the fall in production of food grains has been an area of grave concern and has been one of main reasons for pushing up prices, the rough analysis of the past trend of production and price behaviour shows that the fall in production has not necessarily resulted in price rise and also not of the magnitude witnessed in the recent past as shown in the Table 4.
Price increase in individual commodities are a complex phenomenon. Juxtaposing production trends and price variations are not enough to disprove that futures trading may not have complicated the inflationary situation. It is necessary to be sure, above all, of the quality of trading, the size of deliveries, the extent to which farmer have genuinely benefited from price discovery and income realisation; if an overwhelming benefit goes to unearned and speculative incomes of traders, the so called economic rationale is a myth. For instance, the authors have argued that the wheat prices have shot up due to sub-optimal production and falling stocks for two successive years. But, as we have put the data for production and inflation across a number of commodities for past 7 years we find that fall in production has not necessarily resulted in pushing prices and at times high production has been associated with elevated price levels. Eight, MS and SJ consider that the argument put forward by Kabra that futures cannot provide an answer to post-harvest problems of storage, financing etc. are incorrect as commodity exchanges make provisions for multiple delivery centres and warehouses are accredited and reputed assayers are sought to maintain the quality. Further, warehouse receipts would enable loans for farmers. This present a double issue as on one hand the small farmers by design and structure are left outside the purview of the exchange and on the other, they have said that exchanges are not preferred for delivery but for price discovery implies that the so called infrastructure of exchanges would not be used exhaustively. Further, if the data on usage of these facilities is provided on regular basis it would help strengthen the information system
Market
Reach According
to MS and SJ, the ninth misconception held by KNK is that futures trading
does not have widespread participation. The authors, however, contend,
that there are nearly 20,000 trading terminals in over 550 locations
indicates the reach of the exchanges and data pointing to number of
members holding long and short positions and similar client positions are
enumerated along with number of locations. But, as per their statement ‘
There are over two lakh users on the NCDEX’ implies that the reach is
very narrow and further numbers presented are not impressive where there
is huge farming community of about 894 lakh as per the 59th
Round of NSSO survey year 2003
(SAS) in the country. Further, the analysis of the location of member of
NCDEX as per the member’s list provided on their website, we find that
they are overwhelmingly located in a few areas where the trading activity
dominates such as Mumbai, Finally, options on commodities are by their very nature more complex and include payoffs which are much more complex. Hence by their very nature, they will be attractive to those better equipped to understand the intricacies involved in trading in them and also those who have large holding capacities. Given the present day skills and holding day capacity of the farmers, the suitability of introduction of options is questionable, which would be beneficial at a later stage as the skills are upgraded. As the authors have said that if a farmer sells at a price of Rs 100 and realise at the time of harvest the actual price would be higher, then he need not sell on the exchange and could instead only forego the premium which he has paid upfront. Now here the loss for the farmer is the premium he has been paying just for holding the privilege for several months as the gap between sowing and harvesting is indeed a number of months and at times that could add up to be more than the benefit so stated. Options will be beneficial as the market and market participants grow to that stature of using them effectively and not favour or address the needs of just one class of participants. Next, the minimum support price being highlighted as a veiled option, but the most significant aspect of this is that the farmers are not paying any premium for it and so there is no escalation of cost affecting their risk – reward patterns which a exchange offered option would entail. To conclude, it appears that the authors have tried to justify the current functioning of the commodity futures market and have pleaded for continuation of the same, as it is just three years old. However, given the various issues that have emerged it would be better if these commodity exchanges endeavour to work towards the goal set ahead for these markets and ensure that the markets grow not just in terms of liquidity but in terms of depth and width of the market. _________________ * This note has been prepared by Piyusha Hukeri
Highlights of Current Economic Scene AGRICULTURE As
per the Solvent Extractors’ Association of India (SEA), exports of
oilmeals from the country have declined by 10 per cent to 2.30 lakh tonnes
for the month of May 2007 from 2.56 lakh tonnes in the same month last
year mainly due to decrease in exports of soya meals. Soya meal exports
have fallen to 1.40 lakh tonnes to 1.10 lakh tonnes in May 2007. However,
there was no export of groundnut meals (as against 18,525 tonne in May
2006) due to failure of groundnut crop. During the seven months of current
oilseed crop season (November-October) 2006-07, the exports of oilmeals
have increased by 8.1 per cent to 38.7 lakh tonnes over same period of the
previous season 2005-06 with export of rapeseed meal, rice bran extraction
and castor meal, also, showing an improvement in their respective exports. In
order to ensure adequate availability of fertilisers at local level during
the current kharif season 2007, the department of fertilisers (DoF) has
plan to pre-position stocks at the state-level at 75 per cent of the
monthly requirement by the start of the month. The department has added
that the total stock must be positioned by the 15th of the
month. Requirement of fertilisers during the current kharif season is
estimated at 131.65 lakh tonnes of urea, an increase of 7.5 per cent over
last season, 40.08 lakh tonnes of di-ammonium phosphate (DAP), a 21 per
cent increase and 16.52 lakh tonnes of muriate of potash (MOP), a 13 per
cent increase over corresponding previous year. The
central government is expected to increase the outlay for the farm sector
by 142 per cent, to Rs 1,43,000 crore, during the XI five-year Plan. The
central government’s share, in the total outlay of Rs 1,43,000 crore,
would be Rs 93,000 crore, 341 per cent higher from the X Plan amount of Rs
21,068 crore. The share of states would be Rs 50,000 crore, 32 per cent
higher over the X plan’s outlay of Rs 37,865 crore. According to the
estimates of the Planning Commission, the share of agriculture in the
annual plan outlays of states had declined from 5.2 per cent in 2002-03 to
4.7 per cent in 2006-07. It is expected to drop further to about 3.5 per
cent in the current (XI) plan. On the other hand, the central
government’s allocation for the sector has increased from 2.5 per cent
in 2002-03 to 3.8 per cent in 2006-07 and is projected to increase to over
6 per cent in the XI plan. With
an aim to compete in the world silk market with hi-quality products,
weavers’ associations in Karnataka are promoting two silk parks around
Bangalore, which would bring the entire processing of silk related items
under a single roof by accommodating units for reeling, twisting, dyeing,
weaving and garmenting by adopting new technologies; for the first time in
India. One park has been promoted by Doddaballapur Weaver Association in
Karnataka is promoting one park under the banner of Doddaballapur
Integrated Textile Park (DITP) in Doddaballapur area, requiring an
investment of about Rs 40 crore, which would accommodate 150-200 silk
processing units. Another park would be set up by Karnataka Silk Weavers
Federation under the banner of Bangalore Hi-Tech Weaving Park (BHWP, which
would get 40 per cent subsidy from the central government. The
Spices Board has set out various plans to promote the export of high-end,
value-added spices from The
agriculture ministry is targetting to produce 150 lakh tonnes pulses for
the current fiscal year 2007-08, while resolving to achieve production
level of 170 lakh tonnes for the next fiscal through a host of measures
The ministry is planning to increase the area under cultivation for pulses
through inter-cropping and production through the Food Security Mission.
It has asked the rice growing states to sow short-duration pulses on the
fallow land in the Kharif season after rice production. The ministry has
decided to increase the minimum support price for pulses to boost
production. The
sugar industry is examining a range of options as a mounting glut in sugar
production and dropping prices threatens its viability and sugarcane
payment to farmers. Among the options being examined are a market
intervention mechanism and raw sugar exports, apart from increasing the
buffer stock. The central government has agreed to create a buffer stock
of 50 lakh tonnes of sugar special purpose vehicle. According to the
Indian Sugar Mills Association an independent company specially promoted
for market intervention to regulate sugar prices, can be another way out
to curb the further fall in sugar prices. The
agriculture ministry is planning to promote land share companies.
According to this new concept, farmers from any specified village or a
cluster of villages can become shareholders in proportion to their size of
holdings. The land would be leased out to the company and the farmer would
receive a share in the profit of the company. At the same time, he can
lease in land including his own land from the company for cultivation for
a fixed rent. According to a proposal access to shares in the land share
company should be largely restricted to farmers and up to 25 per cent of
the paid up capital of the company can be subscribed to in cash by others,
including an agro-processing unit or a trading company. A farmer can sell
his share to other farmers, but the shares should not be traded through
public issue, as there may be risk of takeover by corporate houses or
other entities. The
Finance Ministry has removed the port restrictions on imports of quota tea
from INFLATION Annual
rate of inflation, based on WPI on point-to-point basis stood at 4.85 per
cent for the week ended 26th May 2007 as compared to 5.06 per
cent last week or 4.99 per cent last year. Over
the week WPI declined by 0.1 per cent to 211.7 from 211.9 for the previous
week. Primary articles prices fell by 0.5 per cent due to price fall in
fruits and vegetables, urad,bajra and condiments and spices. Fuel, Power,
Light and Lubricants prices remained unchanged at the last week level of
322.0 and also the index of Manufactured products remained stable at 184.1
WPI
index for all commodities were revised upwards for the weekended 31.3.2007
to 210.4 from 210.0. Inflation rate correspondingly changed to 5.94 from
5.74 per cent. BANKING Seeking
to exercise farmers’ distress, NABARD has designed Rs 2,000 crore plans
aimed at helping them earn a supplementary income. As part of this
strategy, a National Milk Plan would be launched in 325 districts across
the country with the help from the National Dairy Development Board to
ensure that every farmer gets a regular daily subsidiary income to
overcome distress during crop failures. Nabard would also launch an
innovative village adoption scheme in July for integrated and holistic
development of villages to coincide with its silver jubilee celebrations.
Initially Nabard proposes to adopt 400 villages, which would become a
model for development and rope in the lead banks to expand this
initiative. Nabard and the lead banks plans to implement this scheme in
1,200 villages every year. Taking
a cue from the west, the RBI and Indian Banks Association are planning to
introduce a new debt instrument with a 30-year maturity period for banks.
Companies, especially those in the insurance and pension sectors, which
require long-term investments with reasonably high returns, would be ready
takers for such an instrument. At present, the RBI allows banks to take
the perpetual debt instrument route for raising resources. However, this
has seen very few borrowers. The Indian banking industry would require
huge capital in the next 5 years, to meet the stringent Basel II norms and
carry on with their own expansion plans. Standard
& Poor’s (S&Ps) will adopt a three-level approach for rating the
banking system from the first quarter of 2008. The first level would
encompass a base case approach (BCA), which produces globally consistent
capital changes by risk class and geographic region, based primarily on
public disclosures. The next level would be based on specific case
assessments (SCA), which produces globally consistent capital charges by
risk class and geographic region using institution specific data. The SCA
approach includes one-to-one discussions with institutions that possibly
will lead to adjustments but will remain within the general BCA framework.
The final layer would be based on economic capital assessment (ECA) which
will assess the appropriateness and robustness of an institution’s
internal models. This assessment will complement, not substitute for, the
BCA and SCA. In the more than 100 countries planning to implement Basel
II, S&Ps BCA will produce a measure of adjusted regulatory
risk-weighted assets what will leverage on Pillar 3 disclosure. Kochi-based
JRG Securities, announced the launch of futures trading in Indian rupee
contracts in the Dubai Gold and Commodity Exchange (DGCX), through the
company’s subsidiary JRG Metals & Commodities DMCC. DGCX already
trades in three currency contracts. The Indian rupee contract will enable
individuals and companies to have the opportunity to hedge and trade their
rupee risk on transparent and equal basis that an exchange provides. Weak
recoveries of small loan accounts may become a cause of concern for PSBs,
which are getting aggressive with retail lending. Smaller loan accounts of
up to Rs 10 lakh comprise about 75-80 per cent of their total lending
portfolio. However, though banks have managed to put in place a solid
mechanism for recovering of high-value loan accounts, the smaller ones are
often neglected. This may lead to an increase in NPAs for the banks in the
next few years. A host of private sector banks have outsourced recovery
activities while most public sector banks do it themselves. Now PSBs may
look at outsourcing these activities to increase the overall efficiency. CORPORATE
SECTOR The
country’s largest car manufacturers, Maruti Udyog had brought down
overall energy consumption at its Gurgoan plant by 26 per cent in the last
6 years. The company managed to reduce per vehicle power consumption by 31
per cent and water consumption by 67 per cent during this period. CO2
emissions per vehicle (produced during manufacturing) have also been
brought down by about 39 per cent in the last 5 years. The benefits to the
overall value chain are much higher, as MUL has worked in collaboration
with its suppliers to implement the best environment practices at their
facilities. A
global force in Aluminium business, Aditya Birla Group is now targeting a
bigger presence in carbon black business. The $24 billion group has
decided to set up Sony
India Private Ltd., part of Sony Corporation of Japan, is considering the
option of setting up an R&D centre in India for its high definition
(HD) products, including digital cameras, camcorders and colour
televisions as part of its ‘global localisation’ plans. The main
objective behind this is to facilitate the transfer of technology from
which Maruti-Suzuki’s
latest offering, the SX4 that was launched in May 2007 has bring down the
six-year dominance of Honda City in the very first month. In May Suzuki
SX4 sold 3,000 units against 2,838 units sold by Honda City. According to
Honda the decline in sales is only transitional and it will fight to
retain its segment dominance. The
Kerala government has issued a show cause notice to Tata Tea on the charge
that company has been holding land for plantation on which it has no legal
ownership. The documents furnished by Tata Tea Company also reveal that
the company now holds land in excess of what it is legally entitled to. In
a strategic move, FMCG major Marico has entered into the healthcare
services sector by launching ‘Kaya Life Centre’, a chain of
professional weight control centres. To start with, Marico is setting up
its first ‘Kaya Life Centre’ in Mumbai and plans to extend its new
initiative to other major metros across the country. IBM
announced a new initiative to provide energy saving products and services
to its clients in Essar
Global Ltd has received approval from the Canadian government for
acquisition of Algoma Steel Inc for over Rs 7,098 crore (Canadian $1.85
billion), as required under the country’s foreign-investment rules. The
company had obtained approval through its wholly owned subsidiary Essar
Steel Holdings Ltd under the Investment Canada Act. The regulators
approved the deal after Essar agreed to keep the Canadian steel
company’s head office in Sault FINANCIAL
MARKETS Capital
Markets Primary
Market Nelcast
Limited has tapped the market
between June 4 and 8 by issuing
equity Shares aggregating Rs. 43.50 Lakhs,
share of Rs 10 each in a
price band of Rs 195-219 per
share. Meghmani
Organics Limited has tapped the market between June 4 and 7 by issuing
equity Shares aggregating Rs. 102 crores in
a price band of Rs 17-19 per share. Secondary
Market The
market was weak, last week, as Sensex declined in four out of the five
trading sessions. A whole host of factors right from weak global markets,
large IPO’s in pipeline sucking out liquidity, fears of rate hike, and
lack of fresh buying weighed on the indices. Volatility was to fore in the
entire week. The
benchmark index, BSE Sensex lost 507 points or 3.61 per cent to 14,063.81
in the week ended Friday, 8 June 2007. The S&P CNX Nifty shed 152
points or 3.66 per cent to 4,145 in the week ended 8 June 2007. The
week started on a bearish note with the Sensex declining 74.98 points, to
14,495.77 on Monday, 4 June 2007. A sharp fall in Chinese markets weighed
on domestic bourses with shares from auto and IT pivotals attracting heavy
selling. Sensex
gained 39.24 points to 14,535.01, a day later, following a strong recovery
in markets across the globe, led by rebound in On
Wednesday, 6 June 2007, Sensex plunged 279.08 points at 14,255.93, as
fresh selling emerged at fag end of the day. All the sectoral indices on
BSE settled with losses, with shares from PSU, banking and oil & gas
space bearing most of the brunt. Sensex
lost 69.75 points to 14,186.18, on Thursday, 7 June 2007, tracking weak
global markets. However buying support was seen in IT pivotals. The
correction continued for the third straight day, with the 30-share BSE
Sensex losing 122.37 points to 14,063.81 on Friday, 8 June 2007. Weak
global markets triggered fall on domestic bourses. Derivatives
The
Nifty June 2007 futures settled at 4,124, a discount of 21 points compared
to the spot closing of 4,145.
Government
Securities Market Primary
Market RBI
conducted the auction of "7.49 per cent Government Stock 2017"
and "8.33 per cent Government Stock 2036" for the notified
amounts of Rs.6000 crores and Rs.3000 crores respectively. The cut-off
yields for the "7.49 per cent Government Stock 2017" and
"8.33 per cent Government Stock 2036" were 8.1762 per cent and
8.5207 per cent respectively. RBI
conducted the auction of "6.65 per cent Government Stock 2009"
for a notified amount 6 month USD LIBOR 5.40 5.38 of Rs.5000 crores under
MSS. The cut-off yield of the security was 7.9583 per cent. The
cut-off yield in 91-day T-Bill auction moved lower to 7.2274 per cent as
against 7.3937 per cent during the previous week. The cut-off yield in
364-day T-Bill auction moved lower to 7.6869 per cent as against the
previous cut-off yield of 7.8032 per cent. Secondary
Market During
the week, the weighted average call rates during the period ranged between
0.28per cent and 0.54 per cent, while weighted average repo rates ranged
between 0.19 per cent and 0.23per cent and the weighted average CBLO rates
ranged between 0.1 per cent and 0.3 per cent. The average volumes of Call,
Repo, and CBLO segments were Rs.6195.27 crores, Rs.6733.47. crores and
Rs.12590.983 crores respectively. The daily average outstanding amount in
the LAF (reverse repo) operation conducted during the period was Rs.
2988.8 crores. The weighted average YTM of G.S 2017 8.07 per cent bond was
8.1901per cent on June 08, 2007 as compared to 8.1242 per cent on June 01,
2007. The 1-10 year YTM spreads increased by 48 bps to 72 bps Bond
Market Power
Finance Corp has tapped the market to mobilise Rs 150 crore by issuing
bonds and offering 9.90 and 10 per cent respectively for 3 and 5 years. Foreign
Exchange Market The
rupee closed at Rs.40.98/USD on June 08, 2007 as compared with Rs. 40.54/USD
as on June 01, 2007. The Rupee moved between Rs. 40.47 and Rs.40.98, with
a standard deviation of 20 paise during the week. Similarly during the
fortnight (May 28, 2007 - June 08, 2007), the Rupee moved between Rs.40.45
and Rs.40.98, with a standard deviation of 15 paise. The Rupee moved
between Rs.40.45 and Rs.40.98 during the last 1 month (May 14, 2007 -June
08, 2007), with a standard deviation of 16 paise. The
six-month forward premia closed at 2.41 per cent (annualized) on June 08,
2007 vis-à-vis 2.58 per cent on June 01, 2007. Commodities
Futures derivatives The
newly-appointed chairman of the Forward Markets Commission (FMC) BC Khatua,
said, without waiting for the approval of the amendments to the Forwards
Contracts (Regulations) Act, 1952, (FRCA), the existing powers under the
act would be fully utilised to effectively regulate commodity markets so
that the basic objective of permitting commodity trading-- price discovery
and risk management-- are fully met. The
Ahmedabad-based National Multi-Commodity Exchange (NMCE) is all set to
launch futures trading in turmeric of the ‘Erode’ variety . The
exchange obtained the regulator’s approval last week to introduce
turmeric futures initially in four series for their expiry in August,
September, October and November. The contracts for each new month would
open on the 10th of the month or previous day in case 10th is a
non-trading day. Traders
would be permitted to square off their position between 17th and 20th of
the delivery month as the contracts expire on 20th. No fresh positions
will be allowed during these days. And, if the 20th of the delivery month
happens to be holiday, delivery will be due on the previous day. The
exchange is hoping that the Erode variety will repeat the performance of
the Nizamabad-origin turmeric, which contributes Rs 4254 crore every month
to the National Commodity and Derivatives Exchange (NCDEX). Kochi-based
JRG Securities, announced the launch of futures trading in Indian rupee
contracts in the Dubai Gold and Commodity Exchange (DGCX), through the
company’s subsidiary JRG Metals & Commodities DMCC. DGCX listed the
futures contract on Indian rupee on June 07,2007. Indian
rupee is going to be traded in the global futures market for the first
time .The Indian rupee contract will enable individuals and companies to
have the opportunity to hedge and trade their rupee risk on transparent
and equal basis that an exchange provides. Each
DGCX Indian rupee contract represents Rs 20 lakh. Prices will be quoted in
US cents per Indian Rs 100, with a minimum price fluctuation of $0.000001
per rupee ($2 per contract). JRG
has set up a trading infrastructure in the Leading
commodity and stock bourses have shown an interest in starting currency
futures on their trading platforms. The
National Commodity and Derivatives Exchange (NCDEX), the National Stock
Exchange (NSE) and the Clearing Corporation of India Limited (CCIL) have
applied to the RBI for permission to start dollar-rupee futures in
India.The Reserve Bank of India’s (RBI) internal committee is currently
studying the proposal. Even Financial Technologies, the promoter of the
Multi Commodity Exchange, has sought permission to launch the product. Trading
in currency futures is not allowed in Experts
are of the opinion that the Reserve Bank can permit currency futures under
the present structure. In its credit policy statement in April, the RBI
had announced the setting up of a working group on currency futures to
study the international models and suggest a suitable framework, in line
with current legal and regulatory systems. The
food ministry wants private procurement agencies to have five-year
business record. Private
agencies looking to procure foodgrains on behalf of the government will
now be able to do so only if they have an experience of five years in
agriculture-related business, according to a recent policy formed by the
food ministry. This prevents companies promoted by mainline commodity
exchanges for the purpose of procurement and other allied activities from
procurement services. INFORMATION
TECHNOLOGY Indian
software companies on an average get 60 per cent of their revenue from the
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