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Current Economic Statistics and Review For the
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Theme
of the week:
Economy’s Performance as Revealed by National Income Aggregates, At
current prices, GDP at factor cost has been estimated at Rs 37,90,063 crore
and GDP at market prices at Rs 41,45,810 crore for the year 2006-07,
registering increases of 15.7
per cent and 15.8 per cent, respectively (Statement
1). While the personal
disposable income has increased by 14.7 per cent, the PFCE expanded by 12.7
per cent during 2006-07. PFCE has formed 72.2 per cent of PDI, as stated
earlier. The government final
consumption expenditure has also increased at a high rate of 14.5 per cent
to Rs 427,007 crore forming 11.2 per cent of national disposable income,
which has declined from 12.8 per cent in 2002-03.
_______________________________________ *
This note has been prepared by
Dr. K.S. Ramachandra Rao. @ Plan target is available only for the ‘Trade’ Sector
Highlights of Current Economic Scene AGRICULTURE According
to latest Crop Weather Watch Report published by Ministry of Agriculture
as on February 02, 2008, rabi sowings have seen a drop in coverage of
major crops due to dry weather prevailing
in entire central and northwest Indian region, receiving hardly any
rainfall since August. The
wheat plantation, so far during this year, has covered 274.92
lakh hectares, as against 280.63 lakh hectares during the corresponding
period of 2006-07. Total
area sown under rabi oilseeds has touched 86.68 lakh hectares, lower than
that from last year’s 96.10 lakh hectares. Progressive
area reported under the most important rabi oilseed, rapeseed and mustard,
has shrunk at 58.96
lakh hectares over last
year cumulative figure of 66.63 lakh hectares. Besides,
acreages for sunflower have declined from 11.51 lakh hectares to 9.81 lakh
hectares, for groundnut from 7.29 to 7.28 lakh hectares, for safflower
from 3.41 to 3.12 lakh hectares and for linseed from 5.11 to 4.80 lakh
hectares. While sown acreages covered under gram have fallen from 83.03
lakh hectares to 79.31 lakh hectares, the
total area sown under all the rabi pulses has dipped from 137.65
lakh hectares to 130.70 lakh hectares. However,
area under the plantation of lathyrus has gone up from 4.42 lakh hectares
to 5.15 lakh hectares. Area
under coarse cereals like jowar has decreased to 46.57 lakh hectares as
against 49.35 lakh hectares of the corresponding period of 2006, on
the other hand, acreage
under maize has increased from 9.97 lakh hectares to 10.21 lakh hectares
and that of barley from 7.43 lakh hectares to 7.56 lakh hectares. According
to Agricultural ministry, prevailing low temperature in northwestern parts
of the country would have a positive impact on crops like wheat and apple,
while mustard and potato crops would get affected adversely. However,
there would be no impact on pulses and onion crops.
The
Food Corporation of India (FCI) and State agencies have managed to procure
165.67 lakh tonnes of rice during the current marketing season
(October-September) 2007-08 as compared with 164.27 lakh tonnes purchased
during the corresponding period of the preceding season and 250.75 lakh
tonnes of rice during the entire 2006-07 season. Progressive procurement
in marketing season has been higher in Andhra Pradesh, Uttar Pradesh,
Orissa, Uttaranchal, The
central government has extended the national agricultural insurance scheme
on wheat and barely crops for the rabi season till March 31, 2008, in
order to compensate the losses occurred from the natural calamities. The
farmers have been asked for approaching co-operative society, rural banks
and commercial banks to insure their crops so that losses could be repaid.
In case of wheat, the sum insured at normal level and maximum level would
be Rs 7,450 and Rs 18,600 per hectare, respectively and for barely crop it
is Rs 4,350 and Rs 10,900 per hectare, respectively. The premium rates for
wheat would be 1.50 per cent and 4.30 per cent and for barely they would
be 2 per cent and 4.45 per cent, respectively. National
Agricultural Cooperative Marketing Federation (Nafed) of The
outbreak of the disease bird flu in west Bengal has depressed the poultry
industry, as poultry insurance in the region is less than 5 per cent as
compared with the national average, which hovers around 9 -12 per cent.
The northeastern states account for more than 60 per cent of the
country’s poultry chicken, in spite of which the number of policies
issued in this segment are lower. According to the data of ministry,
roughly 2 crore birds are covered by insurance policies across the
country. According to some insurance companies, the problem of under
coverage of birds is set to further aggravate due to regular outbreak of
such infections. The
Tamil Nadu Chamber of Commerce and Industry has urged the central
government to ban the exports of edible oil, edible oil seeds and online
trading of edible oil to contain the soaring prices of edible oil in the
domestic market. For this, it has submitted a detailed memorandum on how
steps can be undertaken to bring down the prices of edible oil, due to
consistent upward trend in the international prices of crude edible oil,
especially the crude sunflower oil in particular surging over 100 per cent
of imported CIF value.
Profit
earned by Uttar Pradesh based sugar companies have started improving, due
to lower sugarcane prices and higher revenue from value added segments
such as cogeneration and distillery. Bajaj Hindustan (BHL), Triveni
Engineering and Dhampur Sugar Mills (DSM) have performed well and their
net profits have increased due to reduction in purchase price to Rs 110
per quintal from Rs 125 per quintal. It is expected that sugar companies
would earn better profits in the quarter ending March 31,2008, as sugar
prices have started firming up due to downward revision in output
estimates from 32 million tonnes to 26 million tonnes. SABMiller,
a leading brewer along with the brand Foster’s, would be starting
contract farming under the Saanjhi Unnati project, under which area under
barley cultivations would be increased. For this, it has roped nearly
6,000 farmers from regions of Rajasthan and Haryana and has acquired
13,000 acres for contract farming of barley. Besides crop improvement, it
would strengthen its backward integrations. The total barley production in
Russian
government has banned imports of plant products including tobacco from According
to ministry of Water Resources, expert committee has been set up, which is
in the process to frame the policy on usage of the groundwater. Under
which industries would be charged for using ground water. Besides, the
center has planned to launch a major national project for harnessing the
development of potential of major rivers across the country. The
National Bank for Agriculture and Rural Development (NABARD) has pegged
the credit potential for farm and non-farm sectors in Andhra Pradesh at Rs
42,460.51 crore for 2008-09 as against that of 36,856.91 crore of last
year. Out of which nearly 62 per cent of the investments would be
allocated to agriculture and allied sectors. While potential for crop
loans for 2008-09 has been put at Rs 20,239 crore and for other sectors it
would be Rs 966 crore of farm mechanization, diary (Rs 631 crore), minor
irrigation (Rs 606 crore), horticulture (Rs 685 crore), non-farm sector (Rs
4,592 crore) and micro credit (Rs 5,518 crore).
The
International Crops Research Institute for Semi-Arid Crops (Icrisat) has
signed an agreement with the Crop and Food Research, Industry The
slow down in the growth of all the three sector pushed down the index of
industrial production to 5.3 per cent in November 2007, a 13 month low as
compared to 9.2 per cent last year.. Mining sector and electricity sector
grew by 3.5 per cent and 5.8 per cent during the month. Slow down in the
growth of manufacturing sector is almost one third recorded in November
2006. Out of the 17 industries, four industries declined and four
industries registered double digit growth.. As per use-based
classification, the sect oral growth rates in November 2007 over November
2006 are 4.8 per cent in basic goods industries, 24.5 per cent in capital
goods and 7.3 per cent in intermediate goods. Consumer goods decline by
2.6 per cent due to substantial fall in the production of consumer
durables and consumer non-durables. Infrastructure The
index of six core infrastructure industries having a combined weight of
26.7 per cent in the index of industrial production registered a slower
growth of 5.3 per cent as compared to 9.6 per cent in November 2007. The
dismal performance of crude petroleum rose only by 0.3 per cent as against
a growth of 9.8 per cent last year, and comparatively lower growth
performance of refinery products, electricity, cement, steel all
contributed for the lower rate of growth. However, coal production for the
third month in succession registered a faster growth with its production
rate registering a growth of 7.7 per cent in November 2007 as against a
low growth of 4.9 per cent in November 2006 Inflation The
annual rate of inflation calculated on a point to point basis, rose by
3.93 per cent for the week ended January 19,2008 as compared 6.31 per cent
as on January 20.2007. Marginal
rise 0.3 per cent in has been witnessed in Index of Primary Articles group
from 222.1 from 222.8 for the previous week. Food articles group remained
stationary. Index of non-food articles rose by 1.1 per cent mainly due to
higher prices of The
index for the major group Fuel, Power, Light and Lubricants rose by 0.1
per cent due to higher prices of furnace oil and light diesel oil. The
index of manufactured products rose by 0.1 per cent due to higher prices
of many edible oils and sugar. The
final WPI for all commodities had been revised upward from 215.6 to 215.4
for the week ended November 24, 2007. As a result the rate of inflation
calculated on a point to point basis stood at 3.11 per cent as compared to
3.01 per cent provisional. Banking National
Housing Bank (NHB) is partnering US-based AIG United Guarantee, Asian
Development Bank and International Finance Corporation to set up PNB
has launched a full-fledged banking branch in Robust
recovery in bad loans and higher interest income helped PNB record a 26
per cent increase in net profit at Rs 541 crore in the third quarter ended
December 31, 2007, as compared with Rs 430 crore in the corresponding
quarter last financial year. Deutsche
Bank AG has achieved the milestone of crossing the $100 billion mark for
assets under custody in HDFC
– the country’s largest housing finance company – has taken the
lead, announcing a reduction in its retail prime-lending rate (R-PFR) by
25 basis points with effect from February 1, 2008. The R-PLR cut will
accrue to existing floating-rate customers over the next three months,
based on their reset dates. For new customers, HDFC’s rate of interest
under the adjustable-rate home loans continues at 10.25 per cent. Government FinancesThere
has been a marked improvement in key deficit indicators of the government
finances. The fiscal and revenue deficit have both dropped considerably
after the end of third quarter. Fiscal deficit has shrunk to 51.4 per cent
of the budgeted target to Rs 77,578 crore till end December 2007. It had
stood at 63.8 per cent of Budget estimate (BE) till end December 2006.
Till end November 2007, fiscal deficit had been much higher at 63.8 per
cent of the BE totalling Rs 96,274 crore. Revenue deficit has also dropped
down massively to 54.9 per cent of the BE to Rs 39,210 crore till the end
of the third quarter of this fiscal. It had totalled 78.8 per cent of the
BE till December end 2006. The Centre’s revenue deficit till end
November 2007 had stood at Rs 69,974 crore—97.9 per cent of the BE. The
remarkable decline in revenue deficit was mainly due to the whopping
advance tax collections till December 15, when the third tranche of
advance has to be submitted. However, the primary deficit of the
government has risen to an all time high of 424.8 per cent of the BE to a
negative of Rs 34,186 crore. It had stood at a mere 25 per cent till end
December 2006. The increase in primary deficit, which equals the fiscal
deficit net of interest payments, is mainly on heavy interest payments by
the Centre amounting to Rs 81,013 crore in December 2007. Total
expenditure of the government has amounted to 69.7 per cent of the BE at
Rs 4,74,253 crore till end December 2007 as against 68 per cent till end
December 2006.
Financial
Market Capital
Markets Primary
Market Reliance
Power, which recently entered the capital market with its maiden offer of
22.8 crore shares, is set to allot 15 shares each to 43 lakh retail
investors, who have applied for 225 shares and above. On this basis, the
Anil Dhirubhai Ambani Group (ADAG) will have about 43 lakh retail
shareholders turning it overnight into a company with one of the largest
number of shareholders anywhere. The company sought to raise Rs 11,500
crore, as the issue was oversubscribed by 73 times, it ended up with
mobilising Rs 4.52 lakh crore (about $119 billion). With the allocation
process nearing completion, about Rs 1 lakh crore will be refunded. The
QIB portion, which was subscribed 82 times, had 445 investors and each of
them would secure a minimum allotment of 1.2 per cent of the application.
The issue is to get listed on the stock exchanges on February 11, 2008.
Gammon
Infrastructure Projects, a unit of construction firm Gammon Wockhardt
Hospitals has revised downwards the price band of its initial public
offering of shares. The price band is now Rs 225 (at the lower end) and Rs
260 (at the upper end) per equity share. The earlier price band was Rs
280-Rs 310 per equity share. According to market men, this downward
revision was not surprising in view of the current market conditions. The
issue opened on January 31 and will closes on February 5. Cox
and Kings (India) Ltd, operating in the travel segment, has filed its
Draft Red Herring Prospectus(DRHP) with SEBI to enter the capital market,
with an IPO of 87 lakh equity shares of Rs 10 each for cash at a price to
be decided through a 100 per cent book building process. The issue
comprises a net issue of 86 lakh equity shares to the public and a
reservation of up to one lakh shares for permanent eligible employees. Stung
by the prevailing choppy market conditions, real estate major Infrastructure
project development company, KNR Constructions Ltd, has fixed the issue
price at the lower end of the price band at Rs 170 per equity share for
its IPO of 78.74 lakh equity shares of Rs 10 each. The company had fixed
the price band at Rs 170-180 a share. The issue comprises a net issue to
the public of 77.34 lakh shares of Rs 10 each and a reservation for
eligible employees of up to 1.4 lakh shares. The issue and the net issue
respectively constitute 28 per cent and 27.5 per cent of the fully diluted
post-issue equity share capital of the company. The bid/issue closed on
January 29 and was subscribed 1.25 times based on the preliminary bidding
data received from the stock exchanges on the closing day.
Tulsi
Extrusions Ltd, PVC pipes and fittings manufacturer for the irrigation,
industrial, infrastructure and housing sector, is entering the capital
market with a public issue of 57 lakh equity shares of Rs 10 each for cash
at a premium to be decided through the 100 per cent book building process.
The price band for the issue had been fixed at Rs 80 to Rs 85. The issue
will open on February 1, and will close on February 5. The proceeds from
the proposed IPO will be used to expand their manufacturing facilities at
Jalgaon, to meet their long-term working capital requirements, purchasing
of branch offices, provision of contingencies, general corporate purposes
and to meet the issue expenses. SVEC
Constructions Ltd, a Secondary
Market According
to data compiled by Bloomberg, BSE Sensex fell in January, its worst month
in at least 28 years, on concerns of a possible recession in the After
four days of losing streak, the Indian stock markets bounced back on
Friday to end the week on a positive note mainly on the back of strong
global cues coupled with some value buying by domestic investors at lower
levels. The BSE Sensex gained 584.71 points or 3.31 per cent to close at
18,233.42 points while the NSE Nifty gained 179.8 points or 3.50 per cent
to close at 5,317.25 points. In spite of the strong closing on Friday, the
Sensex closed the week with a loss of 128 points while Nifty gained 43
points during the week. But global Markets responded negatively to the 50
basis points (bps) cut in interest rate by the US Federal Reserve, which
came within seven days of its previous cut of 75 bps, even the key
domestic indices also ended lower on January 31,2008. The 30-share BSE
sensex moved in the range of 591 points before closing at 17,648.71
points, a loss of 109.93 points or 0.62 per cent. NSE Nifty gyrated in the
range of 180 points before settling at 5,137.45 points, a loss of 30.15
points or 0.58 per cent from its previous close. Most
of the sectoral indices of BSE declined over the week with the highest
fall in BSE-Reality by 11.87 per cent followed by BSE-capital goods by
5.89 per cent. Among the gainers, BSE-IT gained 3.52 per cent followed by
BSE-Auto, BSE -FMCG, and BSE -Metal. SEBI
decided to reduce the costs for mutual fund investors by doing away with
the initial issue fee for close-ended schemes on January 31, 2008. The
SEBI board also cleared the draft proposal for listing debt securities,
eased disclosure norms for existing debt market securities and paved the
way for permanent registration of capital market intermediaries.
Pension
Fund Regulatory & Development Authority (PRFDA) chairman D Swarup is
in favour of investing upto 70 per cent corpus of the pension fund in the
Indian equity market, although the new pension bill, yet to be passed by
the Parliament, allows equity investment only up to 50 per cent of the
pension fund corpus. Some of the leading domestic and foreign institutional investors (FIIs) have made a representation to the market regulator SEBI requesting it to relax the one-year lock-in period for the shares issued before the Initial Public Offering under the pre-IPO placement route. Short
selling by the institutional investors may be kicked off a week later than
the scheduled February 1. Though SEBI and stock exchanges are ready for
its timely rollout, there seems to be some confusion whether short selling
will attract the Securities Transaction Tax (STT) or not. The Central
Board of Direct Taxes (CBDT) is yet to clarify on the issue. The SEBI
cleared the introduction of short selling by the institutional investors
long back, but by the RBI recently, along with the Securities Lending
& Borrowing (SLB) scheme, which was prevalent in 1996-97. The SLB
scheme then was introduced through approved intermediaries. On
January 31, 2008, SEBI Chairman N Damodaran said that the market regulator
is mulling a proposal to reduce the time gap between the closure of an
initial public offer and its listing. The proposal has been forwarded to
the sub-committee and the committee is likely to submit its report soon.
This is the first time SEBI has confirmed such a proposal is under
consideration. Such a measure by the market regulator assumes significance
in the light of the recent Reliance Power’s IPO. In a move that could
address the financing needs of small and medium enterprises in the
country, SEBI chairman also said that a stock exchange exclusively for
SMEs will be set up this year. Initially, there will be one exchange and
we can look at launching more if the market grows up. The market regulator
also said that it is in process of rewriting SEBI regulations. SEBI has
already set up an investor protection fund in accordance with demands for
investor protection and education. After
the SEBI Act is amended, all the fines and penalties will go towards the
investor protection fund, which can further be used for investor education
and awareness. Also
on the agenda of the board meeting is a proposal to swing profit
regulations. This relates to the concept of remitting all profits earned
by those designated as insiders in a company while buying or selling
shares within six months of each other. The aim is to check insiders in a
company who are privy to sensitive information taking undue advantage of
their position. The
Reserve Bank of India (RBI) has called for a shift in the manner in which
foreign investment policies are managed to ensure there are broader
measures in place to block undesired capital inflows and to enhance the
quality of flows. The central
bank wants the government to adopt a more holistic approach that combines
sectoral regulations with broader measures to enhance the quality of flows
and make the source of inflows transparent. Investors
may prefer to invest in the existing schemes of mutual fund houses instead
of putting money into new fund offerings, after the Indian markets went
into a tailspin following weak global cues and a situation of tight
liquidity in On
January 28, 2008 SEBI signed a bilateral MoU with Securities and Exchange
Commission of The
shareholding pattern of foreign institutional investors (FIIs) in the
period between September 30 and December 31, 2007, revealed that they made
a net purchase of Rs 26,856 crore, buying mostly undervalued stocks.
According to the latest available data, FIIs offloaded shares valued at Rs
19,326 crore in 384 companies, while buying shares worth Rs 46,182 crore
in 709 companies. The
provisional data on BSE and NSE indicate that the FIIs were net sellers to
the tune of Rs 12,492 crore, while custodian data to the SEBI revealed net
buying of shares worth Rs 17,624 crore during the quarter ended December
2007. Foreign
institutional investors (FII) sold record net holdings of Rs 13,036 crore
($3.23 billion) in January, according to SEBI data.
This is the highest net sales by FIIs in single month ever since
they entered the Indian markets. In August 2007, FIIs sold Rs 7,771 crore
($1.92 billion) worth of equity shares. However, dwarfing the figure
compiled by the SEBI, the FII outflow in January 2008 was a mind boggling
Rs 29,477 crore, according to provisional data provided by BSE and NSE.
The SEBI data includes FII buying in primary and secondary markets, while
the data from the exchanges is based on trading in the secondary market
only. Derivatives The
Nifty February futures closed at a premium of three points against a
discount of eight points to the spot Nifty on January 25 largely on
account of short covering and modest long buying.
The put-call ratio (PCR) of Nifty February options were below 1,
indicating an oversold market. Hence, the Friday rally remained a
technical breakout. Though the
Nifty PCR improved from 0.86 to 0.96 on account of an increase in the put
open interest (OI) by 206.6 per cent compared with 174.6 per cent in call
OI, the increase in put OI was out of the money (4,700-5,100 strikes),
indicating support at lower levels.
In
terms of volatility, the Nifty has been swinging by over 3 per cent per
day – that is considerably higher than the normal range. Very few
operators are capable of stomaching the requisite margins and hence,
overall volumes have dropped. The loss of liquidity is apparent in the
fact that even the Nifty is not generating either volumes or OI in the mid
or far contract. In fact, the rise on Friday was accompanied with some
major profit booking that saw the extinguishing of many near-term Nifty
contracts and a large drop in net OI.
The Spot Nifty closed at 5317 while the February contract was
settled at 5321 with the Mini-Nifty settled at 5318. The March Nifty was
settled at 5311 with Mini-Nifty at 5312. There is hardly room for
arbitrage with these differentials. The
other indices did not have much liquidity except in the near contract. The
Nifty Junior closed at 10,219 in the cash segment and it was settled at
10171 in the futures market. The CNX IT closed at 4074.15 and it was
settled at 4044. The Bank Nifty closed at 9327.05 and it was settled at
9358. The Nifty-Midcaps 50 closed at 2804 and settled at 2809.
The
drop in volumes has hit the stock futures section the worst. This is not
surprising since this is the preferred playground for under-capitalised
traders who have been knocked out by margin calls. As usual, the
derivatives segment is dominated by counters from the Reliance and ADA
Groups. Among other active F&O counters, BPCL and Tata Steel would be
the most interesting choices. Government
Securities Market On
January 30,2008, Reserve Bank of India (RBI) auctioned 91-day and 364-day
T-bills for the notified amounts of Rs.2,000 crore (out of which Rs.1,500
crore under MSS) and Rs.2,000 crore (out of which Rs.1,000 crore under
MSS), respectively. The cut-off yields for 91-day and 364-day T-bills were
7.27 per cent and 7.49 per cent, respectively.
RBI
re-issued 11.30 per cent 2010 for Rs.3,000 under Market Stabillisation
Scheme (MSS) on January 31,2008 at the cut-off yields of 7.57 per cent. RBI
announced the sale (re-issue) of 8.20 per cent 2022 for a notified amount
of Rs. 5,000 crore and 8.33 per cent 2036 for a notified amount of Rs.
4,000 crore. Both the government
stocks will be sold through price-based auctions using multiple price
method. The auctions will be conducted on February 8, 2008. Under
the MSS, 12.25 per cent 2010 for Rs.4,000 crore will be sold (re-issued)
through a price based auction using multiple price method. RBI will
conduct the auction, on February 7, 2008. Secondary
Market At
the end of the reporting fortnight, banks scrambled for liquidity,
resulting in a temporary tightening, which pushed up call rates to 8 per
cent. However, call money rates ended the week lower at 5-5.25 per cent,
down from the previous week’s close of 6-6.10 per cent. Inter-bank rates
fell to as low as 2 per cent since most of the banks had covered positions
well in advance. Huge amounts infused by RBI into the system through LAF
offered support to the market while call rates topped 8 per cent.
At the weekend liquidity adjustment facility auction, banks
borrowed 20 bids worth Rs.33,075 crore through the repurchase window and
nine bids worth of Rs 10,300 crore were received at the reverse repos
auction. Trade
volumes improved over the week. The average daily trade volume was Rs.
8,000 crore. The jump in trade volume was partly due to recourse to CBLO
by banks. The outlook though was positive. The
market regulator has decided to increase the investment limit by the FIIs
and their sub-accounts in government securities (G-Sec)/Treasury Bills
(T-Bills) to $3.2 billion from the earlier level of $2.6 billion. In
addition, SEBI has clarified that all investments by FIIs/ Sub Accounts in
debt oriented mutual fund units (including units of money market and
liquid funds) shall henceforth be considered as corporate debt. Bond
Market The
government will issue oil bonds worth Rs 9,080 crore to state-run fuel
marketers IOC, HPCL and BPCL as part compensation for selling fuel below
cost during the third quarter ended December 31, 2007. While IOC is
expected to get Rs 5,100 crore worth of oil bonds, HPCL will receive bonds
worth Rs 1,900 crore followed by BPCL at Rs 2,080 crore. This is in line
with the government’s policy to compensate the public sector oil
marketing Companies by issuing special oil bonds, corresponding to 42.7
per cent of the total losses on sale of the four fuels.
Public
sector oil marketing Companies—IOC, HPCL and BPCL—have asked the
government to issue necessary clarifications to the provident/ gratuity
and superannuation funds to participate in the liquidation of the special
oil bonds. In a letter to the labour ministry, IOC chairman and managing
director Sarthak Behuria said that despite RBI’s permission on the
eligibility of these bonds for subscription by the PFs, the SBI (fund
managers of the employee PF organisation) was not participating in the
liquidation of the special oil bonds on the grounds that a clarification
on the issue is yet to be received from EPFO. The country’s financial regulators and the government are set to put in place a fresh set of policy measures to boost the corporate debt market and trading in securitised debt. Also on agenda is tightening of insider trading norms to check profiteering by insiders in firms. After discussions, the capital markets regulator SEBI will now seek the approval of its board, to unveil norms aimed at simplifying the issuance and listing of corporate bonds. These will also include permitting e-issuance of corporate bonds that will make the process faster and more cost-effective for issuers. The board will also consider a proposal to issue regulations for listing of securitised debt instruments. SEBI will regulate the segment and permit listing of securitised debt instruments by registering special-purpose entities. For the public issue of securitised debt instruments, the regulator is expected to insist on a credit rating from two rating agencies besides setting out disclosure norms. Foreign
Exchange Market The
rupee stuck to a very narrow range through the week, ending at 39.36
against the dollar. A 50-bps rate cut by the US Fed did not impress the
rupee as the RBI had held the benchmark rates steady in its policy review.
In the later part of the week, the rupee managed to edge up a few paise,
possibly as normal month-end demand eased. The sharp 50 basis points
reduction in the key US Federal Funds rate would trigger an inward
capital, particularly NRI deposits, to capitalise on interest
differentials. The flows pushed forward premia up sharply. Premia for one,
three, and six months were 1.52 (0.3)
per cent, 2.34 (0.91) per cent and 2.08 (1.73) per cent
respectively. Commodities
Futures derivatives The
government had been decided to allow FDI up to 26 per cent and FII up to
23 per cent in commodity exchanges on January 30, 2008. The decision comes
within a week of the government’s initiative to give the Forward Markets
Commission (FMC) more teeth through an ordinance. However, the cap for a
single investor in a commodities exchange has been pegged at 5 per cent.
The relaxation would allow Indian exchanges to integrate with global
commodity exchanges. Foreign
investors, which have already acquired equity in two of three Indian
commodity exchanges, may have to cut their stake following a cap of five
per cent imposed on single firm in the new FDI policy. Spelling out the
policy, the government has allowed 49 per cent foreign investment in the
commodity exchanges subject to a condition that no single investor will
hold more than five per cent. Hitherto, foreign investment in these
exchanges was neither prohibited nor included in the sector-specific
policy. Both in MCX and in NCDEX, the holding by the single foreign
investor exceeds the limit set by the Union Cabinet. According
to Multi Commodity Exchange of India (MCX), forward trading of agriculture
commodities will be hugely beneficial to farmers and the move will not
push up prices of agriculture commodities, as projected by the Left
parties. As per MCX deputy managing director Massey Joseph, prices of
commodities do not depend on the forward trading. It mainly depends on the
fundamentals of specific commodities, and price rise occurs as a result of
an imbalance in the fundamentals. The
daily average futures trading volume of all the major agri-commodities on
the National Commodity & Derivatives Exchange Ltd (NCDEX) has dropped
sharply and touched a lowest level of Rs 1,659.46 crore (single side) in
December 2007, due to the government’s intervention in the futures
Markets. This is the lowest futures trading volume of the exchange in the
last two years. Average daily turnover of the exchange is falling
constantly since April 2007 because the government took a series of
stringent measures to curb excessive speculation in the agri-commodities
futures. As a result, trading volume in agri-commodities was declining
day-by-day due to uncertainty in the market. The government took a series
of action to curb the excessive speculation in agri-commodities in the
beginning of the calendar year 2007. As a result, trading volume dropped
constantly on the national bourses. Some key steps taken by the government
include member & client level position limits reduced in black pepper
(June 2007), margins increased in jeera & pepper (April 2007),
increased positions limits in chilli (March 2007), ban on wheat & rice
(February 2007), ban on urad & tur (January 2007), increased total
minimum margins in maize, guargum & seed and reduction of position
limit in maize (December 2006). In
order to give a boost to the food-processing sector, the government is
planning to allow forward trading of fruit and vegetable pulp on commodity
exchanges. The proposal has been mooted by the Ministry of Food Processing
Industry. According to Minister of State for Food Processing Industry
Subodh Kant Sahai this will help farmers get better price and reduce
wastage of agricultural and horticultural products. As
per the state-run Rubber Board, the output may rise 14 per cent to a
record this month after cool weather helped plantation work. According to
the board’s joint director, G Mohana Chandran, output may reach 1,10,000
metric tonne in January, from 96,450 tonne a year ago. Stockpiles at the
end of the month may gain 31 per cent to 2,34,000 tonne. The MMTC-Indiabulls-promoted national level commodity exchange may have to change its proposed equity structure. Indiabulls may have to bring down its equity holding from 74 per cent for obtaining the clearance from FMC for the country’s fourth commodity exchange. The proposal is under consideration as a commodity exchange promoted by a broker, Indiabulls, and a market player, MMTC, may face regulatory issues. Insurance The
government has extended the national agriculture insurance scheme on wheat
and barley crops in rabi season this year in order to compensate the
losses from natural calamities. Farmers who intend to take loans or have
already taken loans on wheat and barley crops can insure their crops till
March this year. This scheme was compulsory for loanee farmers and for
non-loanee farmers. The last date for crop insurance was March 31, 2008. Aviva
Life Insurance, a joint venture between Aviva and Dabur, announced an
increase in its capital base by Rs 246 crore, taking the total paid-up
capital of Rs 1,004 crore.
Corporate
Sector Maruti
Suzuki India Ltd, the country’s largest carmaker, posted a 24 per cent
rise in third quarter net profit. The company’s profit rose to Rs 467
crore in the quarter ended December 31, 2007 as against Rs 376 crore a
year ago. Its exports grew by almost 52 per cent. The
country’s largest steel manufacturer, the state-owned Steel Authority of
India (SAIL) has reported 32 per cent increase in net profit at Rs 1,935
crore for the third quarter ended December 31, 2007 compared to Rs 1,471
crore in the corresponding period last year. Leading
wind turbine manufacturer Suzlon Energy’s standalone net rose by a
record 92 per cent to Rs 338 crore on the quarter ended December 31, 2007
from Rs 176 crore in the corresponding period of the previous year. Tata
Power company’s net profit for the quarter ended December 31, 2007 stood
at Rs 197 crore and in not comparable with the same period last year as
the corresponding period included higher reversal of tax provisions
aggregating Rs 130 crore arising out of favourable assessments/orders
pertaining to the Mumbai licence areas operations. The
government has announced further liberalization of foreign direct
investment (FDI) in seven key economic sectors.
External EconomyTelecom Bharti
Airtel has announced a 42 per cent increase in its profits to Rs 1,722
crore for the third quarter ended December 31, 2007 compared to Rs 1,215
crore in the corresponding quarter in the previous year.
Information Technology The
Indian business process outsourcing (BPO) industry could potentially grow
five-fold by 2012 to become $50 billion player and employ 20 lakh people
in the country by then, according to Nasscom’s Everest India BPO study.
The BPO industry in
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