Current Economic Statistics and Review For the
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Theme
of the week:
Firming Interest Rates Scenario*
Introduction
In the past few years, that is, from 2004-2007, there has been an upward shift in the structure of interest rates as reflected in the rise in the money market rates, increases in the yields set on the central and state dated securities, firmness in the coupon rates offered on corporate bond issues and rise in the prime lending rates charged by the banks for borrowers. These increases in the rates have generally occurred at a time when there has been surplus liquidity situation except for few periods when liquidity was under pressure. Accompanying these increases in rates, there have been hikes in the benchmark rates such as reverse repo and repo rates as well as increases in the cash reserve ratio (CRR). The benchmark rates have been revised upwards in pursuit of the goals such as synchrony with global rates, inflation containment and minimising the impact of upsurge in international flows on the financial markets. However, recently the rates in some of the advanced countries have been eased but the domestic policy has not moved in sync with the rates in those countries. For instance, though the market participants had expected a cut in benchmark rates following the cut in US fed rate ahead of the mid-review of policy announced on October 30, 2007. However, the RBI increased the CRR rate by 50 basis points. Increases in Yield Rates
As
shown in Table 1, the yield rates offered on the central and dated
securities shows that it has gone through three phases. In the first
phase, the weighted average yields on central dated securities increased
from 11.78 per cent in 1991-92 to 13.75 per cent 1995-96 as it was felt
that the rates offered on them were not high enough to attract voluntary
subscriber (Narashimam Committee Report, 1991). Simultaneously, the
weighted average yield on stated loans was increased from 11.84 per cent
to 14 per cent over the same period. In the second phase, there has been sharp easing of rates of interest due to a number of macroeconomic factors such as declining inflation rate, capital flows and associated liquidity surge and softening of interest rates abroad. More importantly, it was shift in the monetary policy that favoured soft interest rates. Consequently, the yields on central dated securities eased from a peak of 13.75 per cent in 1995-96 to 5.71 per cent in 2003-04 and those on state government eased from 14 per cent to 6.13 per cent.
In
the third phase, the yields on central dated securities have increased
from 6.11 per cent in 2004-05 to 7.89 per cent in 2006-07 and then further
rose to 8.20 per cent (upto October 22, 2007), an increase of around 200
basis points. Similarly, the yields on state government securities
increased from 6.45 per cent to 8.33 per cent over the same period.
Thus,
the Graph 1 shows the movement of yield rates offered on central and state
government securities. The wherein they touched a peak in 1995-96 and then
a trough in 2003-04 and have risen again in 2007. Rise
in Prime Lending Rate (PLR)
The prime lending rate has decreased from 10.25 –11.00 per cent in March 2004 to 10.25-10.75 per cent in September 2004. It remained steady until June 2006 when it rose to 10.72-11.25 per cent and then jumped to 11.75-14.50 per cent in March 2007 and further to 12.50-16.50 in October 2007 (Table 2). This high interest rate appears to have affected the borrowers as there are reports of increasing bad loans, even in housing sector, which sometime ago, had least non-performing assets (NPAs) and was considered to be among the safest option.
Increases
in Benchmark Rates
In this period, the benchmark rates have increased sharply. The reverse repo rate has increased from 4.5 per cent in March 2004 to 6 per cent in July 2006; thereafter, it has remained steady at it. Also, the repo rate has risen from 6 per cent in March 2004 to 6.25 per cent in October 2005 and then to 6.50 per cent in January 2006. Thereafter, it has risen to 7.75 per cent in April 2007. Thus, the reverse repo has increased by 150 basis points and repo by 175 basis points between March 2004 and November 2007. The CRR has increased from 4.5 per cent to 7.5 per cent over the same period. Reasons for Increases in Policy Rates
Inflation Targeting
With
the inflation regaining its strength in the latter half of 2004 amidst a
robustly growing economy, galloping non-food credit expansion and in sync
with global trends, the RBI began with monetary tightening process by
increasing the reverse repo rate and repo rate (as shown in Table 2).
Despite, the increases in these benchmark rates, the inflation and
non-food credit off-take increases continued to surge and RBI began using
the CRR as an extensive measure for absorbing liquidity. Recently, RBI changed its policy towards exchange rate management and allowed the rupee to appreciate at such a rapid pace that the Indian rupee appreciated the most among the emerging market economies, which has begun to hurt the exporters, and though sops have been extended to them, the concerns regarding slow down in exports growth and consequent job loss. Global
Synchronisation
The RBI began assigning more weight to global factors than before while formulating the policy stance (First Quarter Review, July 25, 2006; pg 26). Thus, as the global rates were firmed up, the domestic rates were also increased. Liquidity
Management
In
the recent period, though the inflation has been brought under control
through a comprehensive policy of increasing imports, allowing rupee to
appreciate, and increases in benchmark rates, the RBI has again continued
the policy of increasing the CRR. In
the recent policy announced on October 31, 2007 wherein CRR was increased
by 50 basis points with effect from November 10, the RBI has said, “the
biggest challenge is the management of capital flows and the attendant
implications for liquidity and overall stability. A visible reflection of
the sheer magnitude of the inflows is the accretion to the foreign
exchange reserves which has been of the order of US $ 62 billion during
the current financial year up to October 19, of which US $ 48 billion has
been built up since end June 2007” (Pg
55) Conclusion Thus,
the usage of the monetary instruments for achieving short-term goals has
led to the RBI got into a cycle wherein it increased the rates to be in
ynchronization of the global trends instead of focusing on the domestic
economy and then later, it used these instruments to fight inflation.
Further, they allowed the rupee to appreciate. As a result, the RBI has
now faced with copious inflows and now again has to resort to increases
the reserve requirements to contain its impact on the financial markets. * This note has prepared by Piyusha D Hukeri.
Highlights of Current Economic Scene AGRICULTURE MMTC
Ltd has issued a tender to import 3.5 lakh tonnes of wheat to help the
government to boost its stockpiles. Bids have been invited for issuing
tender, which would sought the imports either in bulk or in containers and
the same would required to be delivered on the basis of cost and freight
before February 10, 2008. The tender would be closed on
November 19, 2007 and offers would be valid till November 24,2007. It is
expected that the country is likely to get bids ranging between US $ 440
to US $ 450 per tonne and the ports of delivery given as per the schedule
are Mundra, Kakinada, Kandla, Chennai, Vishakapatnam, Tuticorin, Kochi,
and Mumbai.
The
central government has announced an additional bonus of Rs 50 per quintal
for paddy, which would be procured by government agencies in the current
marketing season (October-September) 2007-08. Hence, final and effective
procurement prices for common varieties of paddy would be Rs 745 per
quintal (MSP of Rs 695
plus bonus of Rs 50) and
that for grade ‘A’ varieties would be Rs 775 per quintal (MSP
of Rs 725 plus bonus of Rs 50). Thus, after factoring the current MSP
levels with that of the last year, the effective increase has come to Rs
125 per quintal, marking one of the largest jumps for any crop year.
Rabi
sowings are picking up across the country. As per the data by Crop Weather
Watch Group, till November 15,2007, wheat and mustard acreages are fallen
down drastically. Wheat acreage is down by 34.75 lakh hectares as compared
with the corresponding year coverage of 52.71 lakh hectares. While, area
under rapeseed-mustard have decline to 35.10-lakh hectares as compared
with last year coverage of 52.76-lakh hectares. On the other hand sown
acreages of oilseeds have dropped to 47.24 lakh hectares as compared from
last year’s corresponding level of 68.18 lakh hectares. While in some
sates oilseeds sowing is yet to pick up mainly due to late sowings. Pulses
acreages has also register a huge decline from 69.85 lakh hectares to
67.50 lakh hectares including from 47.25 lakh hectares to 42.76 lakh
hectares for gram (chana), 7.95 lakh hectares to 5.87 lakh hectares for
lentil (masur), 4.31 lakh hectares to 3.53 lakh hectares for peas and 3.66
lakh hectares to 3.54 lakh hectares for kulthi. Whereas more area has been
come under urad from 1.51 lakh hectares to 3.18 lakh hectares, moong from
0.38 lakh hectares to 1.13 lakh hectares and lathyrus from 3.22 lakh
hectares to 4.10 lakh hectares.
According
to Solvent Extraction Association of India (SEA) imports of non-edible oil
have slipped downwards for the last oil year (November-October) 2006-07 by
11 per cent to 6.29 lakh tonnes from 7.09 lakh tonnes in the same
corresponding year. While, imports of edible oil for the oil year
(November-October) 2006-07, have gone up radically by 7 per cent at 47.15
lakh tonnes, of which, crude palm oil (CPO) and sunflower oil imports have
risen sharply mainly on account of duty cut from 70 per cent to 45 and 40
per cent respectively. Imports of crude palm oil (CPO) have increased by
26.16 per cent to 29.94 lakh tonnes in oil year 2006-07 and that of
sunflower oil have improved by 93.06 per cent at 1.95lakh tonnes during
the same period. Whereas, soyabean oil imports have declined by 22.30 per
cent to 13.23 lakh tonnes. As a result, share of the palm group of
oilseeds in the total oil import has increased to 67 per cent. Thus, total
imports of palm group of oil including CPO have increased by 23.47 per
cent to 31.72 lakh tonnes. According
to Soyabean Processors Association of India (SOPA), soymeal export from
the country for the oil year 2007-08 season is likely to jump by 38 per
cent to 45 lakh tonnes due to expected higher production of soyabean in
the county as compared to the exports during previous season, when it had
stood at 32.56 lakh tonnes. The other reason is perceived to be
competitive freight advantage of US $ 40-50 per tonne for exporters as
compared with the prices quoted by exporters in The
central government has ruled out any plan to reduce the import duty of
edible oil, even though landed prices of crude palm oil have risen by
around US $ 130 per tonne and that of de-gummed soyaoil by over US $ 200
per tonne since last round of duty cut on July 25, 2007. However, decision
regarding undertaking other moves like banning exports of sesamum seeds
and groundnut kernel have yet to be reached. As
per the review by Centre for Monitoring Indian Economy (CMIE), the overall
growth in crop production during 2007-08 would be around 4.1 per cent
owing to rise in kharif crop production and expected increase in rabi
crop. An area under foodgrain, oilseeds, sugarcane and cotton in the
kharif 2007 was more than 2006. As per CMIE’s estimates oilseed
production would be at 27 million tonnes during financial year 2008 as
compared with 23.9 million tonnes produced in the corresponding period of
the last year. Among oilseeds, production of groundnut would rise to 8
million tonnes in financial year 2008 from 4.9 million tonnes in 2007,
while soyabean production is also expected to rise by 8 per cent due to
increase in acreage. Sugarcane production is estimated to be around 365
million tonnes in financial year 2008. As
per the report by Mr. Wallace Tyner an agricultural economist from International
Cotton Advisory Committee (ICAC) has predicted that there would be a
decline in the world cotton production by 2 per cent in 2007-08 to 26.1
million tonnes. This dip would be attributed to the fall in cotton
acreage. Mill offtake at global level would increase by 3 per cent to 27.5
million tonnes. The production decline would be coupled with increased use
of cotton by mills due to which it is expected that it would push up the
stock levels by 11 per cent to 11.4 million tonnes. While, the world
cotton imports would rise by 10 per cent to 9.1 million tonnes in 2007-08
due to rebound in imports by The
central government has approved an amount of Rs 30 crore per annum to be
spent towards pepper replantation programme, which would cover 20 thousand
hectares per year over the period of next 10 years under the National
Horticultural Mission in Kerala. It has plans to provide a grant of Rs 47
lakh under HRD grant scheme to 4,664 workers from 8 tea gardens in the
state that have remained closed since long period. As
per the Rubber board, target set for both exports and imports of natural
rubber has been revised on account of distinct changes in domestic and
international market conditions. As per the revised estimates, imports
would increase to 80,000 tonnes as against its earlier target of 60,000
tonnes. Imports of natural rubber, during April-October 2007 were 50,865
tonnes as against that of 28,879 tonnes last year showing a growth of 41
per cent. However, the board has scaled down the exports target to 25,500
tonnes as against its earlier projection of 70,000 tonnes. During April-
October 2007, nearly 17,495 tonnes were exported as against that of 49,702
tonnes during the same period last year. As
per the projection, High
court of Uttar Pradesh has relieved sugar mills from high cane prices and
falling realisations and has allowed mills to pay Rs 110 per 100 kg for
cane during the current crushing season (October-September). This price,
however, is lower than the
price fixed by the Uttar Pradesh Government (on October 31, 2007) at Rs
125 per quintal for normal cane and at Rs 130 per quintal for early
maturing varieties. Hatsun,
one of the largest private diary in the country would be launching Hatsun
Agro Project to encourage farmers to take up dairying as a mainstream
investment as traditionally it has been supplementary activity in farms.
The main objective of this project is to enhance milk yields and farmers
income, which would improve the quality and quantity of milk it procures
for marketing. Mother
Diary, subsidiary of National Dairy Development Board would be expanding
its edible oil portfolio by venturing into olive and rice bran oil segment
as it have been already selling vegetable and mustard oils under Dhara
brand. The company aims to achieve 10-15 per cent market share in the
olive oil segment within a year of the launch. It is expected that it
would add 2,000 tonnes of oil per year to the domestic market. India’s
first online delivery based spot trading of horticulture crops is formally
expected to start by December2007 as it is in the process of completing
the enrollment of its members this month. This trading would be commenced
under the Safal National Exchange of India (SNX). As
per the book released by Mr.P.K.Joshi and Mr.P.S.Barithal reveals that the
contract farmers have earned profits more than their counterparts
especially by milk contract farmers, vegetable farmers and boiler farmers.
Milk contract farmers have attained the profit double than that of the
non-contract milk farmers, while corresponding difference has been seen of
78 per cent for vegetable farmers and 13 per cent for boiler farmers. Cost
of production for contract farmers was less by approximately 21 per cent
in the case of milk and 26 per cent in case of vegetables as compared to
that of non-contract farmers. This lower production costs were mainly due
to massive fall in transaction costs. The share of transaction cost in the
total cost for non-contract farmers was around 20 per cent, while it was
only 2 per cent for contract farmers. In case of boiler contract farmers,
they hardly incurred any cost on extension communication and
transportation for acquiring inputs. These costs were as high as 80 per
cent of the total transportation cost in boiler production. InflationThe
annual point-to-point inflation rate based on wholesale price index (WPI)
remained unchanged at its previous week’s level of 3.11 percent for the
week ended November 03,2007. During the comparable week of the earlier
year, it was 5.45 per cent. During
the week under review, the WPI rose by 0.2 per cent to 215.6 from 215.1
for the previous week’s level (Base: 1993-94=100). The index of
‘primary articles’ group, (weight 22.02 per cent), declined marginally
to 224.2 from its previous week’s level of 224.5.Food articles prices
decline by 0.3 per cent due to lower prices of jowar, poultry chicken,
fruits and vegetables, maize and arhar. As against this prices of moong,
fish mrine and eggs and bajara and pork moved up. Non-food
articles rose by 0.4 per cent because of acceleration in the prices of raw
rubber, copra, soya bean raw cotton and castor seed while mesta prices
declined.. Higher
prices of furnace oil, aviaton fuel, naptha and bitumen pushed up the
prices of ‘fuel,
power, light and lubricants’ group (weight 14.23 per cent) by 0.6 per
cent to 325.7. The
index of ‘manufactured products’ group (weight 63.75 per cent) rose by
0.2 per cent to 188.0 from 187.6 for the previous week. Higher prices of
some edible oils, ghee and khandsari pushed up the food products prices by
0.8 per cent to 191.2 from 189.6 for the previous week. Textile
group, Chemicals group and machinery and machine tools are some of the
other groups which looked up. However, there was a decline in the prices
index of non-metalic mineral produtcts.by 0.2 per cent mainly because of
th fall in the prices index of cement by 1.0 percentage point. The
latest final index of WPI for the week ended September 08,2007 has
undergone upward revision; as a result, both the absolute index and the
implied inflation rate stood at 215.0 and 3.46 per cent as against the
provisional data of 214.7 and 3.32 per cent. Banking Union
Bank of RBI’s
Deposit Insurance and Credit Guarantee Scheme (DICGS) had shelled out over
Rs 123.37 crore in the first half of this financial year towards payment
to depositors of 17 insolvent banks which have failed to repay the
deposits to customers during April – September 2007. Under DICGS
insurance norms, a maximum of Rs 1 lakh is paid to a depositor in case the
bank goes insolvent. Public FinanceDuring
the month of October the excise duty collection of the government has
grown by 14 per cent totalling to Rs 10,293 crore over the corresponding
month of the previous year whereas Customs duty collections have increased
by 25 per cent to Rs 9,353 crore, from Rs 7,503 crore during the same
month the previous year. Cumulatively during first seven months of the
current fiscal year Excise duty collections have stood at Rs 64,948 crore
against Rs 60,401 crore registered during the same period a year ago, an
increase of 8 per cent. Customs duty collections have surged by 17.4 per
cent to Rs 57,833 crore during the period against Rs 49,276 crore during
the same period a year ago. For fiscal 2007-08, the budget estimate for
excise duty collections has been pegged at Rs 1,30,220 crore while customs
duty collections has been estimated at Rs 98,770 crore. Financial SectorCapital
Market Primary
Market Jyothy
Laboratories Ltd, a fast moving consumer goods (FMCG) company, is to enter
the capital market with an initial public offering of 44.30 lakh equity
shares of Rs 5 each through an offer for sale by the selling shareholders,
which include Canzone Ltd, ICICI Bank Canada, ICICI Bank UK Plc, South
Asia Regional Fund and CDC Investment Holdings Ltd. The offer for sale is
for cash at a price to be decided through a 100 per cent book building
process, which opens on November 22 and will close on November 27. The
price band has been fixed at Rs 620- 690. Renaissance
Jewellery Ltd, a company exporting studded-gold and-platinum jewellery,
will tap the capital market with an IPO of 53.24 lakh equity shares of Rs
10 each for cash at a price to be decided through a 100 per cent
book-building process along with one detachable warrant for every two
equity shares allotted by the company. The price band had been fixed
between Rs 125 and Rs 150 per equity share. The offer opened on November
19 and will close on November 21. The equity shares and warrants are to be
listed on both the BSE and NSE. Kaushalya
Infrastructure Development Corporation Ltd will be foraying into the
capital markets with an IPO of 85 lakh equity shares of Rs 10 each for
cash at a premium to be decided by 100 per cent book building process. The
price band has been fixed between Rs 50 and Rs 60. The issue is to open on
November 20 and close on November 23. The shares are proposed to be listed
on the BSE and NSE. The company plans to use the proceeds from the issue
to fund land acquisition, land development rights and real estate
development, investment in BOT/BOOT projects for joint ventures, and
purchase of capital and infrastructure equipment for the execution of
projects. The
major promoters of the NSE, banks and financial institutions have
suggested to the stock exchange that it should float an initial public
offer which will provide a easy exit route to the banks and FIs to bring
down their respective stake holding to 5 per cent as required under the
new demutualisation guidelines of the Sebi.
Under the guidelines, any single entity holding in a stock exchange
either in the form of institutions or banks or single individual should
not exceed 5 per cent. Following these guidelines, NSE has written to most
of the promoters to bring down the stake to 5 per cent by October 2008,
and the matter will be discussed in the board meeting of the exchange
scheduled to be held in the last week of November 2007.
According
to Rajnish Rangare, Head-Capital Markets, Karvy, several brokerage houses
have back-to-back arrangements with banks for IPO financing. The over
subscription of recent IPOs shows that liquidity conditions are very good.
Spectacular returns by the recent initial public offerings (IPOs) on
listing day are prompting a growing number of retail investors and even
high net worth investors (HNIs) to borrow funds at a costly 16 to 17 per
cent (for two or three weeks) to bid for IPO shares. Trend has accelerated
as some offerings have given 100 per cent returns within days of listing.
Secondary
Market Despite
gaining in only two out of five trading sessions, markets ended with gains
of a little over 4 per cent. BSE sensex and NSE nifty were up by 790
points and 250 points at 19,698.36 and 5,906.85, respectively, led by
banking, capital goods, power and oil and gas stocks. Mid and small-cap
companies galloped by more than six per cent each.
It was a late Diwali for the Indian stock markets as they joined
the rally across the globe on November 14, 2007 on buying by domestic
institutions led by insurance companies and short covering by traders
towards the end of the trading session propelled the BSE Sensex to its
biggest single-day gain. After rising more than 6 per cent market slid by
0.7 per cent on November 15, 2007 as worries about the fallout of US
credit troubles came back to haunt the global markets. All
the sectoral indices of BSE gained over the week except BSE-IT. Among the
gainers, BSE FMCG surged by 11.16 per cent due to ITC’s interest in
Parle’s confectionery, which pushed up the index, followed by BSE Bankex
was up 7.74 per cent. On
November 14, 2007, Securities and Exchange Board of India (Sebi) taken a
decision on its board meeting to introduce seven new derivative products,
to encourage domestic markets and make it largely to move onshore. The
suggested derivative products were based on the interim recommendations of
the Sebi Committee on Derivatives, headed by Prof. M. Rammohan Rao. The
seven products are: mini-contracts on equity indices, options with longer
life, volatility index and F&O contracts, options on futures, bond
indices and F&O contracts, exchange-traded currency (foreign exchange)
futures and options and exchange-traded products to cater to different
investment strategies.
Sebi
has proposed a comprehensive review of its Disclosure and Investor
Protection (DIP) guidelines. The
suggestion for a complete review of the DIP guidelines came from the Sebi
board, when its views were sought on exemptions needed by Reliance Power.
At present, the public issues are governed by guidelines, which do not
have the same force of law as regulations. Once the DIP guidelines are
converted into regulations, these would come under parliamentary scrutiny
as any other rules and regulations. After
the DIP norms become regulations, Parliament will have the right to seek a
review of the provisions if it is not convinced about any of them. Any
amendments to the DIP guidelines are currently carried out through
administrative decisions by executive authorities at Sebi. According
to mutual fund-tracking firm Value Research, 60 out of 154 mutual funds
have under performed their benchmarks by over 30 per cent or so in a year
that saw the BSE Sensex gain more than 40 per cent. These 60 funds were
under performers with a big margin; overall, 84 schemes under performed
benchmarks in this year's bull rally, reflecting bad investment strategies
or poor stock selection by the fund managers.
The sensex and BSE 200 have gained by 43 per cent and 47 per cent
this year, respectively. The redeeming quality for the Indian mutual fund
industry is that the figure is better than 2006, when 85 per cent of funds
lagged the sensex. Overseas
investors are rushing to invest in the booming Indian stock markets
directly by applying for Foreign Institutional Investor (FIIs) licenses,
less than three weeks after the curbs on participatory notes (P-notes).
Nearly 50 applications for FII registrations, including from Morgan
Stanley, Citigroup, Bank of America, CLSA and hedge fund DE Shaw, have
been cleared since October 16 when the Sebi imposed the curbs on P-notes,
derivatives that allowed foreign investors to trade on the Indian markets.
Derivatives
The
spot nifty closed at 5,906 with the November series settled at 5,913.5 and
December at 5,898.5 while January was settled at 5,881.5. The Junior
closed at 11,121 in spot with the November future settled at 11,179. The
Bank Nifty (which was the best-performing index) closed at 9,474 with the
November future settled at 9,484. The CNX IT, which lost ground, closed at
4,374 in spot with the future settled at 4,368. Only the Nifty has
liquidity in mid and far term contracts.
There is no difference to speak of in the CNXIT and the BankNifty. Government
Securities Market Primary
Market Seven
State Governments auctioned 10-year paper maturing in 2017 through an
yield based auction using multiple price auction method on November 13,
2007 at cut-off yields ranging from 8.39-8.69 with the lowest for Tamil
Nadu and the highest for Kerala. RBI has set the underwriting commission
cut-off rate at 39 paise per Rs.100 in respect of the auction of West
Bengal State Development Loan. RBI
is to re-issue 7.99 per cent 2017 and 8.35 per cent 2022 for Rs.3,000
crore and 4,000 crore, respectively on November 23, 2007 through price
based auctions using multiple price method.
On
November 14, 2007, RBI auctioned 91-day and 182-day T-bills for the
notified amounts of Rs.3,500 crore (out of which Rs.3,000 crore under MSS)
and Rs.2500 crore (out of which Rs.2,000 crore under MSS), respectively.
The cut-off yields for 91-day and 364-day T-bills were 7.52 per cent and
7.60 per cent respectively. Secondary
Market
Inter-Bank
call rates ended at 7.75-8 per cent, up from the previous week’s close
of 6.50-6.75 per cent; intra-day it touched a high of 9.25-9.75 per cent
due to acute shortage of funds. Over the weekend, the outstanding repo
balance was Rs 30,655 crore suggesting a tighter-than-expected cash
conditions. The cumulative CBLO volumes for the week rose to Rs
1,41,259.65 crore from Rs 1,36,058.85 crore. The overnight weighted
average yield was higher at 7.65 per cent against 5.90 per cent in the
previous week. The 10-year slipped to the lowest in two weeks, to 7.87 per
cent in line tracking US yields, which hit 2-year lows. At
the weekend repo auction, 28 banks/primary dealers (PDs) accessed the repo
window for Rs 28,000 crore. Part of the tightening was triggered by
arbitrage opportunities that came up on high call rates as it touched nine
per cent, throwing up an arbitrage opportunity for banks. Another small
part of the repo access also stemmed from redemption of bulk deposits by
corporates. The tight situation pushed up the yields at the weekly
treasury bill auctions. The yield on the 91-day T-bill rose to 7.51 per
cent. However, the tightening ensured that the ten-year weighted average
yield to maturity (YTM) remained unchanged at 7.94 per cent, as in the
previous week. On
November 16, the New York Federal Reserve carried repurchase operations of
over $28 billion. Of these, at least $3.7 billion was in the form of
repurchase of mortgage-backed securities. But the Fed’s infusion has
conveyed the impression that liquidity support would continue for some
more time and interest rates would be allowed to soften, despite financial
market troubles. As a result, inflows into the domestic markets from
foreign institutional investors gathered pace. Bond
Market
Corporate
bonds remained more or less constant and trades were far and few as
markets were bereft of cash. LIC,
the government-owned insurer, is bailing out the financially-strapped oil
marketing companies by buying up the oil bonds issued to them by the
government, though at a discount. LIC
is pretty much the sole buyer of these bonds, confirmed a senior official
of Indian Oil Corporation (IOC), the largest government-owned marketing
company. Other
financial institutions together buy a minuscule amount of the bonds on
sale by IOC and the other two oil-marketing companies, Hindustan Petroleum
Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL). These
bonds are issued by the oil marketing companies to compensate for charging
consumers less than market price on petroleum products like fuel, LPG and
kerosene. Power
Finance Corp is tapping the market by the issuance of floating rate bonds
to mobilise Rs 100 crore through book building, to be linked to 1 yr Gilt
yield for 10 years. The bond has been rated AAA by crisil and icra. Foreign
Exchange Market Oil
companies’ rush to take advantage of the reversal in oil prices
marginally pulled down the rupee. The rupee dropped to Rs 39.35 against
the dollar, as PSU oil companies took advantage of the firm exchange
rates. According
to bankers, a firm rupee was far from over. This was evident from the
softening forward premia. Forward premia for one month was down to 1.3 per
cent. Three, six and 12-month premia were down to 1.42, 1.43 and 1.17 per
cent respectively. The drop in premia at the long end was partly led by
exporters and foreign direct investors resorting to long-term hedges. After
a choppy week, the rupee once again ended at 39.33/$, the same levels
where gains were capped in the preceding week. The unit dipped to as low
as 39.49 in the first half of the week but high dollar levels were too
hard to resist for exporters and the rupee gained to as high as 39.28
mid-week. Once again, a wave of suspected bids by state-run banks along
with strong dollar demand from oil companies pushed back the rupee.
Forward premia edged up, leaving absolute dollar levels higher. Annualised
levels were up by almost 30 bps. The
yen strengthened against all 16 of the most-traded currencies, rising
beyond 110 per dollar for the first time in 1 1/2 years, as investors
reduced holdings of higher-yielding assets bought with loans in An
RBI panel has recommended the introduction of trading in currency futures
to enable market participants to better manage currency risk exposures.
RBI’s internal working group has suggested setting up of dedicated
exchanges for currency futures to ensure that regulatory and supervisory
control rests solely with the central bank. It has also suggested
initially allowing only resident entities to participate in currency
futures without any limits. The group suggested that once the systems were
in place, only two categories of entities outside Commodities
Futures derivatives According
to Yashwant Bhave, Consumer Affairs Secretary, the government is likely to
decide on setting up the fourth national commodity futures exchange in two
to three weeks. The Forward Markets Commission has received the
application for setting up the new exchange, and will review the
application. Last month, state-run MMTC and IndiaBulls Financial Services
announced their intention to jointly set up In
October, the total turnover of 23 commodity exchanges in the country
increased by approximately Rs 59,000 crore compared with that of the
previous month. Of this, the Multi-Commodity Exchange (MCX) alone
contributed Rs 57,000 crore or 97 per cent. What is more surprising is
that just four international commodities — gold, silver, crude oil and
lead have laid the foundation of MCX’s stellar performance during the
month. The Forward Markets Commission data show that nine international
commodities (gold, silver, copper, zinc, lead, nickel and natural gas)
traded on MCX contributed 96 per cent of the total turnover between April
and October this year. Together these commodities — traded on MCX —
recorded a higher turnover of Rs 56,000 crore, contributing approximately
95 per cent of the total growth posted by all the exchanges put together.
Market sources are unanimous that by and large, Indian commodity markets
may be witnessing concentrated trading in international commodities,
without much influence on the prices of these commodities. After
a rally for two months, the much-awaited downturn in gold prices has taken
place. Standard gold in the domestic markets has dropped by Rs 340 per 10
grams in last one week to Rs 10,315, while silver has plunged Rs 1,000 per
kg to Rs 19,750 on 14 November 17, 2007. Gold
prices have jumped 15 per cent during this third quarter and it is the
most since 1999. The yellow metal has climbed 27 per cent this year. Since
the US Fed rate cut in September, prices have gone up by almost 14 per
cent. Gold climbed 18 per cent in the past two months as lower interest
rates sent the dollar tumbling, and crude prices rose to a record. In
October, gold prices gained 6 per cent and have tracked the softening
crude prices, which fell from $100 a barrel to $91 a barrel in one week. The
Rubber Board has scaled down the country’s natural rubber production by
4 per cent in 2007-08 as production during the April-September period fell
sharply by 62,000 tonnes. According
to the board’s revised estimates, total rubber production will be
819,000 tonnes, against the earlier projection of 874,000 tonnes. Last
year, the production was 853,000 tonnes.
Loss in tapping days due to deadly epidemics such as chikungunya
and heavy rainfall caused the fall in production during the first half of
current financial year. The loss could have been serious but the Rubber
Board has projected the production during October-January at 409,000
tonnes, up 32,375 tonnes over last year as an estimated good production,
which the main production season world over.
According
to monthly review of the Centre for Monitoring Indian Economy (CMIE) the
overall growth in crop production during 2007-08 (FY08) works out to 4.1
per cent owing to rise in kharif crop production and expected good rabi
crop. Production of all major
crops is expected to see growth in FY08 and the growth would be more
pronounced in case of non-food crops such as oilseeds, cotton and
sugarcane. Higher commodity prices and satisfactory rainfall encouraged
farmers to bring more area under these crops. This will be the third
consecutive year of good growth. After falling by 3 per cent in FY05, crop
production was up by 7.4 per cent in FY06 and 3.2 per cent in FY07. Cardamom
prices are likely to witness a sharp rise unless there is a quantum leap
in the imports, mainly from The
Forward Markets Commission (FMC) will soon take up the issue of allowing
banks to participate in commodity futures as some banks have already
started providing finance to commodities that are hedged on comexes.
Federal Bank has financed up to 85 per cent of the price of some of
the plantation commodities hedged on comexes. The bank is planning to
finance up to 90 per cent. FMC is promoting the idea of aggregators for
helping small farmers to hedge their crops on comexes. It also planning to
register such aggregators and adopt a liberal regulatory framework. Corporate SectorL&T
in a consortium with Paul Wurth has bagged a Rs 581 crore order from SAIL
for upgradation of its blast furnace at the Bokaro Steel plant on a
turnkey basis. The project is to be completed in 21 months. Network
services major GTL has acquired a Malaysia-based network planning and
optimization company, ADA Cellworks, in an all-cash deal of $25 million
(around Rs 100 crore). The acquisition will conclude in the next few
weeks. Bombay
Rayon Fashions is investing Rs 1,100 crore to set up new fabric and
garment facilities in Information
Technology
Global
IT giant Google will be investing up to Rs 22 crore in Ventureast TeNet
Fund – II, a seed-stage fund that will invest in technology companies
trying to establish their foothold. The fund is promoted by Tenet Group of
Chennai IIT and Hyderabad-based Ventureast Fund Advisors. TCS
has signed a four-year, $200 million (around Rs 800 crore) contract with
the Social Security Institute of Mexico. This is one of the its biggest
deals and its first government contract in the region. A
supercomputer from a wholly-owned subsidiary of Tata Sons, Computational
Research Laboratories has been ranked fourth among 500 supercomputers the
world over. It is one of the most powerful one in the Telecom The
Department of Telecom (DoT) has announced the introduction of “number
portability” 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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