Current Economic Statistics and Review For the Week 
Ended January 15, 2005 (3^rd Weekly Report of 2005)

  I

Highlights of  Current Economic Scene

Agriculture

Prospects of rabi crop output appears to be faint with continued shortfall in area under major rabi crops as reported on 10th January 2005 compared to that a year ago. However, growth in area under rice has turned positive in the first week of January with a marginal increase in the current year so far over that in the previous year. Area under wheat and pulses has continued to register a shortfall of 2.0 per cent and 5.5 per cent, respectively, whereas the area under coarse cereals and oilseeds has exceeded the last year’s level in the current rabi so far. State-wise changes in area allocation indicated that there is a shift in area allocation from wheat to oilseeds particularly in Uttar Pradesh, Bihar, MP and other northern states primarily due to a larger increase in minimum support prices of oilseeds. 

The central government has agreed to raise the minimum support price of copra by Rs 70 to Rs 3,570 per quintal for 2005 marketing season. The hike in MSP of copra was in tune with the recommendations of the Commission on Agricultural Costs and Prices (CACP). 

Corporate Sector
Policy issues 
The government scrapped Press Note 18 for all future joint ventures. Overseas partners in such joint ventures would not require the consent of their Indian partners before picking up an interest in other ventures of the company. Starting from January 12, 2005, foreign companies are no longer required to get a no-objection certificate from their Indian partner in sick or defunct joint ventures if they wish to invest in other ventures in the country. 

In a move to raise resources to meet the deficit targets this fiscal year, the finance minister has asked all public sector units in infrastructure related sectors to pay 10 per cent of the next year’s projected dividend this fiscal year itself. This is in addition to the 30 per cent dividend these companies have been asked to pay during the current fiscal year.

The government has shown intention of permitting investments by foreign institutional investors (FII) in Indian news channels.

The government’s decision to impose excise duty on the maximum retail price (MRP) of all drugs took effect from January 8, 2005. Pharmaceutical companies used to pay 16 per cent excise duty on the ex-factory price of medicines. Under the new norms, the companies will be required to pay 16 per cent excise duty on less than 35 per cent of the MRP.

The revenue department planed to approach large corporates whose advance tax payments are lower than expected in the wake of lower tax collections till December. The department has worked out an action plan to make up for the shortfall following lower collections in Delhi and Mumbai. 

The government is planning to introduce a Bill for empowering the director-general of hydrocarbons (DGH) in order to make it the petroleum sector’s upstream regulator. 

The government has decided to invite all the stakeholders, including drug manufacturers for a discussion on how to bring down the maximum retail price (MRP) on drugs. The MRP can be brought down only if the drug manufacturers agree to it. 

With the phasing out of the quota regime, the Indian textile sector requires new investments to the extent of Rs 27,000 crore to compete with other countries according to the finance minister.

Mergers & Acquisitions
Mittal Steel agreed to buy a 37.17 per cent stake in China’s Hunan Valin Steel Tube & Wire Co, which holds most of the production assets of state-run parent company Valin Iron & Steel Group.

Tata Finance, which is being merged with Tata Motors, is leaving behind Niskalp Investments and Trading Company, which was responsible for putting the non-banking finance arm in a financial mess in 2001. 

State-run Indian Oil Corporation may take up to 50 per cent stake in Gujarat State Petroleum Corporation’s gas bearing block in the Bay of Bengal. 

Punjab Tractors Ltd has decided to sell a 14.99 per cent stake in Swaraj Mazda Ltd to Sumitomo Corporation of Japan. 

Reliance Industries Ltd (RIL) announced the acquisition of assets of SM Dyechem Ltd’s glycol division from the Industrial Development Bank of India (IDBI) for around Rs 105 crore. 

New ventures
Tata Steel entered into an agreement to set up a metcoke plant in Haldia, West Bengal. The stakeholders of the project were Tata Steel and West Bengal Industrial Development Corporation and the first phase was estimated to cost around Rs 700 crore and twice as much in the next phase.

Tata Steel has shown interest in setting up a Rs 6,000 crore steel plant in the port city of Vishakhapatnam in Andhra Pradesh. 

Oil and Natural Gas Corporation (ONGC) alongwith its interest in picking up stake in the assets of Russian oil major Yukos, is also in efforts for picking up Canadian firm Encana’s stake in a cluster of oil fields in Ecuador. 

The Indian Oil Corporation is in talks with foreign companies for shipping liquefied natural gas (LNG) for the proposed Rs 2,000 crore Petronet LNG Ltd (PLL) Kochi terminal. 

An Indian company will start selling products of two US companies in their home market. Glenmark Pharmaceuticals announced its alliance with two US-based companies-Interpharm and Konec-for marketing their generic products Naproxen and Nitroglycerin in the US with immediate effect. 

Jindal Steel & Power (JSPL) has announced Rs 2,600 crore brownfield expansion at its Rajgarh unit in Chhatisgarh. 

Engineering major Larsen & Toubro Ltd (L & T) is entering the power generation business by setting up a 400 mw plant at Uttaran near Surat in Gujarat. The investment is expected to be Rs 1,200 crore.

The Rs 1,000 crore Percept group is re-entering the market research business as a part of its plan to be an integrated communications company. 

The Rs 1,500 crore Subrata Roy controlled Sahara India Pariwar is venturing into music business. By the first quarter of next financial year, the company plans to set up a full-fledged music division. 

Reliance Industries Ltd (RIL) would be setting up a port based special economic zone (SEZ) in Gujarat, which is estimated to cost about Rs 12,000-15,000 crore. 

Bharat Sanchar Nigam Ltd (BSNL) plans to double its capital expenditure to Rs 25,000 crore in 2005-06 to maintain a market share of over 50 per cent. The state owned service provider plans to tap the markets to raise debt for expanding it’s subscriber base to 250 million by 2007. 

Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL) launched their Rs 345 crore broadband initiative, aimed primarily at their combined subscriber base of 41 million. 

Kapil Mohan of Mohan Meakin announced the launch of a new low-cost domestic airline, Indus Airways.

Company results
Jet airways has recorded a profit of Rs 129.37 crore in the first six months of the current financial year. This is about 79 per cent of the total profit of Rs 163.10 crore that the airline earned in 2003-04. 

Bharat Sanchar Nigam Ltd (BSNL) has estimated its losses from the tsunami that hit southern India on December 26 at a little over a Rs 100 crore. 

The state-run company Nevyeli Lignite Coporation reported a 93 per cent increase in net profit to Rs 236.83 crore for the third quarter of 2004-05 compared to Rs 122.3 crore in the corresponding period of the previous year.

Infosys Technologies registered a strong performance in the third quarter of 2004-05, registering a net profit of Rs 497.34 crore, an increase of 51.39 per cent compared to the corresponding quarter of the previous year. Company’s revenue touched Rs1,875.61 crore, an increase of 49.21 per cent during the period. Infosys Technologies announced plans to expand its loss-making subsidiaries, Infosys China and Infosys Consulting. 

Tata Consultancy Services announced a net profit of Rs 643.81 crore on a total income of Rs 2,219.86 crore, in the third quarter of 2004-05.

Two-wheeler market leader Hero Honda Motors Ltd (HHML) has reported a profit after tax of Rs 219 crore for the third quarter of 2004-05, recording a growth of 8 per cent over that of Rs 203 crore in the corresponding quarter of the previous year. 

Weak growth in the IT services business has led to MphasiS BFL, a mid-tier software and BPO services firm, reporting a 5.7 per cent decline in net profit to Rs 26.8 crore for the third quarter of 2004-05 compared to the corresponding quarter of the previous year.

Airlines
The civil aviation ministry is planning to scrap the “route dispersal” guidelines that require all domestic carriers to fly non-economical routes in return for operating on key metro routes. It is likely that the guidelines will be scrapped for private airlines. It is however, not clear if Indian Airlines will be able to avail of this relaxation because the carrier will have to serve these routes to meet its social responsibility as a public sector undertaking. As per existing norms, if a domestic carrier does not operate on certain non-metro routes, its licence can be cancelled. 

The civil aviation ministry wants Indian Airlines to complete its fleet expansion before it starts flying on international routes. 

Pharmaceuticals
Domestic pharmaceuticals companies led by Cipla, Matrix Laboratories, Aurobindo Pharma, Sun Pharmaceuticals, Lupin, Dr Reddy’s and Glenmark Pharmaceuticals have filed 59 drug master files (DMFs) with the US Food and Drug Administration (FDA) in the third quarter of 2004-05. Collectively, they represent around 37 per cent of the total global filings during the period. India has been a leader in terms of DMF filings for the past few quarters. 

Telecommunication
Reliance Infocomm has become the first mobile operator to cross the one crore mark at 1.13 crore at the end of December 2004 and occupies the top slot followed by Bharti at 98.3 lakh. According to the latest subscriber base of major mobile operators released by the Telecom Regulatory Authority of India (Trai), the state owned Bharat Sanchar Nigam Ltd occupies the third place at 88.8 lakh mobile subscribers followed by Hutchison and Idea. 

Company issues
Reliance Industries bought back 629,800 shares from the open market on the first day of the buyback programme under the spotlight of the Securities and Exchange Board of India (Sebi). Reliance Industries had informed the Bombay Stock Exchange (BSE) that the company will buy back its fully paid up equity shares of face value of Rs 10 each from the open market. The maximum buy-back would not exceed Rs 570 per share payable in cash for an aggregate amount not exceeding Rs 2,999 crore. 

New facts have been disclosed about the four Reliance group companies that own a 4.7 per cent stake in Reliance Industries Ltd (RIL). These companies, Reliance Polyolefins Pvt Ltd, Reliance Energy and Project Development Pvt Ltd, Reliance Chemicals Pvt Ltd, and Reliance Aromatics and Petrochemicals Pvt Ltd were lent money by Reliance Ventures Ltd, a subsidiary of Reliance Industries Ltd, for buying preference shares in Reliance Telecom Ltd and for making loans to other companies, on terms and conditions that were not known to the RIL shareholder. Further, these four companies also made zero coupon optionally convertible loans to the tune of Rs 204.52 crore to unnamed companies in 2002-03, while one of them, Reliance Aromatics and Petrochemicals Pvt Ltd, also made a zero coupon fully convertible loan of Rs 43 crore. The balance sheets do not say to which company these loans were made.

Reliance Communications and Infrastructure Ltd (RCIL), the holding company of Reliance Infocomm, has in effect transferred its holding in Reliance Infocomm to a third company, Reliance Mobile. Reliance Mobile was then renamed Reliance Information and Communications Ltd (RICL), a name that is similar to that of the original holding company. It could be argued that RCIL is not a listed company and so the stock exchanges do not need to be informed of the transfer. 

Reliance Industries Ltd (RIL) may become the first Indian corporate to initiate external commercial borrowing (ECB) programme in calendar 2005. The company proposes to raise around $ 300 million five-year loan through the ECB route for funding its capital expenditure and refinancing its existing foreign currency portfolio. 

The ministry of heavy industries has formulated a revival plan for Tyre Corporation of India (TCI) and will place it before the Board for Reconstruction of Public Sector Enterprises (BRPSE) within a month. 

After making a soft entry into the Rs 3,000 crore biscuit segment, Hindustan Lever (HLL) has decided to exit the business. HLL was selling its biscuits under the Modern and Kissan franchisee. 

The government has ordered prosecution against Xerox Modi Corporation (XMC) for offences under the Companies Act.

Labour
Trade unions have renewed their demands for the restoration of Employees Provident Fund (EPF) interest rate to 9.5 per cent as against the present rate of 8.5 per cent. The Centre for Indian Trade Unions (CITU) and Sangh Pariwar affiliated Bharatiya Mazdoor Sabha demanded a 12 per cent interest on EPF or at least a restoration of 9.5 per cent offered till the last fiscal year. Trade unions also insisted on the setting up of a sixth pay commission for government employees. They have also opposed disinvestment in public sector companies and increase in foreign direst investment in telecom, insurance and aviation in their pre-budget meeting with Finance Minister.

Inflation
The point-to-point WPI inflation fell sharply below the 6 per cent mark for the first time in seven months to 5.78 per cent during the week-ended January 1, 2004 as against 6.39 per cent in the previous week. This fall is mainly attributed to fall in prices of fuels, vegetables and fruits, edible oils and other food items. The WPI stood at 6.45 per cent in the corresponding period of last year. A series of measures by the Finance Ministry and the Reserve Bank of India enabled inflation to come down and keep under control. Although point-to-point inflation fell by 0.61 per cent, the broad-based WPI rose by 0.2 per cent to 188.6 points due to costly manufactured products and furnace oil as compared to 178.3 points a year ago. The government revised its inflation figure upwards to 7.93 per cent for the week ended November 6, 2004 as against the provisional figure of 7.76 per cent.

Banking
A sample survey conducted by the National Institute of Bank Management (NIBM) has revealed that the average computer fraud risk-level among all Indian banks, excluding foreign banks operating in India, stands as high as 56.48 per cent. For foreign banks operating in India, the risk level is 53.24 per cent. For the public sector banks risk level is as high as 68.28 per cent, above the national level. The private sector banks, however, are below the national average at 44.36 per cent. The NIBM conducted the study on computer fraud risk-management covering 131 branches of various banks of all groups – nationalized, co-operative, private and foreign. It observed that in banks where computer-audit is being done effectively, chances of computer-related fraud and irregularities are less. 

Asset Reconstruction Company of India Ltd. (Arcil) has acquired non-performing assets (NPAs) aggregating Rs.11,300 crore from 21 banks and financial institutions as on December 31, 2004. This constitutes nearly 12 per cent of the gross NPAs of the banking system. This apart, Arcil has taken possession, under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi), of debt aggregating Rs.1400 crore from three defaulting companies. 

The Reserve Bank of India (RBI) has cancelled the certificate of registration of Hyderabad based Goldline Capitals Ltd. for carrying on the business of a non-banking financial institutions.

Dena Bank will raise Rs.216 crore in this month to augment its capital base to meet its future capital requirements. This is the second public issue of the bank and will be issuing eight crore equity shares of Rs.10 each, for cash at premium of Rs.17 at a price of Rs.27. Post the second issue, the government’s stake in the bank will come down to 51.19 per cent from the current 70.99 per cent. 

Punjab National Bank (PNB) will raise about Rs.3000 crore through its second public offer and return 3 crore equity shares to the government by March 31, 2005. The banks paid up capital will rise by Rs.80 crore to Rs.345.32 crore through this public issue. 

After shifting Rs.9000 crore of bad assets to the Stressed Assets Stabilisation Fund (SASF), the newly converted bank, Industrial Development Bank of India (IDBI) has received its maximum sticky assets from electricity generation sector. As on September 30, 2004, the sector had Rs.79.18 crore of non-performing assets with the bank. The largest single borrower of the institution has credit exposure of 4.5 per cent of the total assets of IDBI, while the largest borrower group has a credit exposure of 7.7 per cent of the total assets of the institution. The institution’s loan portfolio is well diversified among industries.

Insurance 
Life Insurance Corporation of India (LIC), for the first time has witnessed its market share slipping below the 80 per cent mark at the end of November 2004, as competition intensified in the life insurance market. LIC’s market share has declined by about 9 per cent in the last 12 months to 79.64 per cent by the end of November 2004 against 88.59 per cent in November 2003. Currently, LIC is facing stiff competition from 13 private players. In addition, the fall in LIC premium income is attributed to the dampened sentiment of its development officers, following the new stiff norms on incentives announced a few months ago.

Telecom
The state-run Bharat Sanchar Nigam Ltd (BSNL) would shell out a whopping Rs.80,000 crore to expand its network capacity to 12 crore line, including fixed and wireless lines in the next 3 years which would account to 200 per cent increase in its network capacity compared to what it has added since independence.

Public Finance 
The government’s total revenue collection from indirect taxes during April-December 2004 was up by 10.3 per cent at Rs 1,17,856.86 crore. The government’s total revenue collection from customs duty during April-December 2004 increased by 13.50 per cent at Rs 41,211.44 crore compared to Rs 36,309.88 crore during the same period in the previous year. Excise duty collection during the period stood at Rs 68,425.86. Service tax collections during the first nine months stood at Rs 8,219.56 crore.

The Centre is expected to easily cross its disinvestment target of Rs 4,000 crore for the current fiscal year. The finance ministry is pushing for the sale of residual stakes in Maruti Udyog Ltd and Bharat Electronics Ltd (Bhel). The ministry hopes to raise Rs 2000 crore through the sale of equity in these companies in the current financial year. It has already generated Rs 2,600 crore through the sale of 5.2 per cent stake in National Thermal Power Corporation. Punjab National Bank and Power Finance Corporation and Power Grid Corporation of India are some of the other companies, which are in the disinvestment list for the current financial year. The government, bound by the shareholders agreement is to sell its 49 per cent residual stake in Balco.

In a circular issued by the Central Board of Direct Taxes (CBDT), the government has clarified that manufacturing and service units set up in the domestic tariff area (DTA) but later converted into export-oriented units will be eligible for tax exemption till 2009-10. Undertakings in DTA’s, which converted themselves to 100 per cent EoU’s will qualify for tax benefits offered to other EoU’s under section 10B of the Income Tax Act. 

The consultative committee attached to the finance ministry has prepared 22 ‘convergence’ parameters for the smooth launch of value added tax (VAT) regime across the country on April 1, 2005. Primary among them are continuation of existing incentives by states without breaking the VAT chain and the threshold limit to remain at maximum annual turnover of Rs 5 lakh for registration of dealers. States have the flexibility to take their decisions within these parameters. VAT rates on various commodities would be uniform for all states/union territories. Basic necessities have been put in the 0 per cent or exempted schedule. Items like motor spirit, air turbine fuel (ATF) and liquor would be included in a category of 20 per cent floor rate of tax. Input tax would be provided for opening stock of goods on April 1,2005 for goods purchased atleast on or after April 1, 2004. 

Pre-Budget proposals
The finance minister, during his interaction with the leaders of some of the prominent industry houses indicated a possible reduction in the peak Customs Duty from 20 per cent to 15 per cent in the Budget 2005-06. The government is also expected to focus on job generating sectors like infrastructure, agriculture, biotechnology and textiles. The industry leaders made a few suggestions. These included reduction of corporation tax from 35 per cent to 30 per cent, allowing foreign direct investment in real estate and information technology hardware and changes regarding labour reforms.

Indian Telecom equipment manufacturers have demanded that the government address the disparity in taxes and duty between locally manufactured and imported equipment in the Budget. While local manufacturers paid two per cent educational cess on their customs, excise and sales taxes, this was not imposed on finished telecom products. Also, while local manufacturers are charged excise duty on the maximum retail price for imported equipment, the counterveiling duty is charged only on CIF price.

The finance ministry is likely to adopt a combination of specific and ad valorem duties in restructuring the excise duty pattern for petroleum products. The new structure would address the twin issues of price stability of petroleum products and certainty in revenue collections.

Exporters in their pre-budget memorandum have sought for an exemption of service tax and value added tax (VAT), in the next budget. According to Federation of Indian Export Organisation (Fieo), to maintain competitiveness of exporters, service tax on export of services rendered outside/in India and paid in free foreign exchange should be completely removed.

Excise duty on most products may be retained at 16 per cent in the coming budget, as the revenue department does not want any reduction in the existing Cenvat rate. Internal estimates by the revenue department show that a one per cent lowering of the rate will reduce excise collections by around Rs 3,500 crore.

The government is planning to reduce excise duty on sugar in the coming budget. The food ministry is also exploring the possibility of proposing a cut in import duty on raw sugar, which will improve the competitiveness of foreign sugar in the domestic markets. Better physical availability of sugar through imports and savings from excise will reduce the spiralling prices of sugar.

The government is likely to provide tax benefits to automobile components and electronics hardware, including telecom equipment in the Budget. It is also considering sops for the food and chemicals industries. According to the finance ministry, these sectors have been identified as employment generating and growth oriented, where the government intends to provide a special thrust. The National Association of Software and Services Companies (Nasscom) in its pre budget recommendations suggested that the government should incorporate provisions for allowing foreign tax credit in the Income Tax Act itself. It has also sought further clarification on tax exemption for foreign establishments outsourcing their work to India.

State news update
Debt- ridden Maharashtra government has decided to raise nearly Rs 3000 crore from the market for the first time in the current fiscal. This is an attempt to curb its debt burden of Rs 1,10,000 crore. The state government has appointed Kotak and Enam to prepare a concept paper to project the true worth of state-run undertakings such as the Maharashtra State Electricity Board (MSEB). The market borrowing, which will be raised will be used to finance irrigation projects nearing completion, clearing payments owed to Hindustan Construction Company (HCC) for the Bandra-Worli sea link project and some drinking water projects in the state.

The governments of Delhi and Maharashtra have agreed in principle to waive stamp duty on the transfer of lands for modernisation of Delhi and Mumbai airports. However, both the state governments have to get the proposal cleared by the respective cabinets.

Capital Market
Primary Market:
Franklin Templeton Investments (India) has set a target of collecting Rs. 750 to Rs. 1,000 crore from the IPO of its open-ended equity dedicated scheme – Franklin India Flexi Cap Fund.
IDBI will issue infrastructure bonds with three options offering maturities ranging from three to five years. The yield on the bond begins with 5.5 per cent on the three -year bond and rises to 5.75 per cent for the five-year bond.

Secondary Market:
Sensex was highly volatile with alternates bout of buying and selling witnessed during the week. Selling pressure across the board from all the participants, including FIIs led the benchmark 30-share sensex towards its second consecutive week decline. For the week ending January 14, 2005 the sensex lost 246.58 points to finish at 6,173.82- its highest fall in last 35-weeks. 

While the broader S & P CNX Nifty lost 84.40 points to finish at 1,931.10 for the week ending January 14. The average total combined turnover on the BSE and NSE was Rs. 7,404.82 crore, compared to Rs. 8,238.91 crore in the previous week. Between January 10 and 13, FIIs sold equities worth Rs. 305.10 crore, compared to the previous net inflow of Rs. 388.50 crore.

Derivatives:
BSE is to launch futures and options on its sectoral indices BSE Teck, BSE IT, BSE PSU and BSE Oil &Gas. The exchange has sought the Sebi’s approval to begin derivatives trading based on these indices. The BSE PSU accounts for 33 per cent of the total BSE’s m-cap. The BSE Oil & Gas, BSE Teck and BSE IT account for 19.9 per cent, 13.6 per cent and 18.1 per cent, respectively of the total BSE’s total m-cap. Beginning February 1, 2005 Sebi has directed the stock exchanges to maintain adequate capital cushion from all its trading members in the futures and option segment.

The trading interest in the NSE F & O segment was reasonably high and outstanding positions declined sharply for futures contracts, as investors preferred to deal in option segment. In the Index option, the outstanding positions rose consistently for Nifty calls and puts during the week, the open interest rose at 1,950 and 2,000 levels for Nifty calls and 1,900 and 1,950 level for puts. The put-call ratio for open interest declined marginally from 0.92 to 0.87. 

Government securities market
Primary Market:
Despite easy liquidity and positive inflationary outlook, activity in the market was subdued revolving around the developments in the global crude oil prices and currency. The yield on the 91-day T-bills moved up by 8 basis points to 5.32 per cent levels.

The on-tap sale of 7.02 per cent State Development Loan, 2015 was closed in a staggered manner with the sale closed for nine States on the first day itself; on the second day, the sale was closed for the remaining 11 states. The sale targeted an amount of Rs. 6,000 crore as against which it received applications for an aggregate amount of Rs. 4,086.86 crore of which Rs. 3,148.24 crore has been retained.

Secondary Market:
The call money ruled in the 4.60-4.80 per cent band throughout the week. The amount parked in the RBI reverse repo declined successively from over Rs. 40,000 crore in the preceding week to Rs. 14,825 crore by the weekend. The SGL traded volumes remained in the range of Rs. 2,500-3,000 crore during the week.

The lower-than-expected fall in inflation rate at 5.78 per cent failed to have any impact on the secondary market, the yield on the 10-year benchmark 7.38 per cent GOI 2015 rose to 6.63 per cent from the week’s opening level of 6.53 per cent. 

Bond Market:
Weak market sentiments due to a surge in global oil prices and a slide in the stock market led to an increase in the corporate yield. The triple-A 5-year benchmark yield rose to 7.02 per cent from 6.98 per cent, while its spread over comparable government bond eased by five basis points to 56 basis points. 

The State Bank of Mysore raised Rs. 175 crore through bonds to increase its tier-II capital, Icra has assigned LAAA rating to these unsecured redeemable non-convertible subordinate bonds.

Foreign Exchange Market:
The rupee tracked the euro-dollar movement through the week. The rupee ended the week about six paise higher at 43.76/77 to the dollar as against the previous close of 43.84/85.

The US treasury secretary John Snow statement that he is in favour of strong dollar coupled with the possibility of the US Fed hiking rates affected the forward market with the six-month annualised forward premium finishing the week at 2.03 per cent as against the previous close of 1.86 per cent.

Commodity Market:
The RBI has set up a working group to suggest enabling measures to encourage flow of institutional finance to farmers against warehouse receipts.

The news of Saudi Arabian supply tightening, risk of cold spell in the US along with the sabotage at Iraqi oil facilities led to an increase in the global crude oil prices during the week ending January 15. The US light crude oil finished the week at $48.35 a barrel as compared to $47.1 in the beginning of the week. While the London’s Brent crude was up at $45.22 a barrel on weekend as against the $44.8 a barrel in the beginning of the week.

Credit Rating:
Fitch has assigned a national rating of A+(ind) to the proposed Rs 1 billion subordinated debt programme of IndusInd Bank. It has also assigned BBB+(so) rating to Maharashtra Jeevan Pradhikaran’s Rs. 500 crore long-term NCD programmes with stable outlook.

In another exercise, Fitch has assigned an AA+(ind) rating to Vijaya Bank’s proposed issue of Rs. 2.5 billion subordinate bond.

Icra has assigned conditional highest safety ratings to the pass through certificates (PTC) under the securitisation issue backed by commercial vehicle loan receivables, organised by ICICI Bank. The Rs. 300 crore issue consists of six series of rated PTCs, having tenure ranging between one year and five years. The series includes A1 (A1+(so)), A2 (MAAA (so)) and A3 (LAAA (so)). 

In another exercise, Icra has removed the LAAA, MAAA and A1+ ratings assigned to the long-term, medium-term and short-term debt instrument of Punjab National Bank (PNB) from rating watch, following an announcement on the possible merger of IFCI with PNB. It has also assigned a LAAA rating to the Rs. 75 crore NCD programme of Citifinancial Consumer Finance India (CCFI), while the LAAA rating outstanding against the Rs. 50 crore NCD programme of the company has been reaffirmed.

Crisil has upgraded the ratings on Tata Finance Ltd.’s Rs. 260 crore NCD programme to AA+/stable from A/stable, following the announcement of its merger with Tata Motors Ltd. 

In another exercise, Crisil has reaffirmed the AA+/stable rating assigned to the Rs. 3.77 billion NCD issue and Rs. 12 billion short-term programme of Tata Motors.

Care has assigned a PR1+ rating to the CP programme of Rs. 30 crore of Nilkamal Plastics, the rating factors in the NPL’s dominant market position in the moulded plastic furniture and crates segments, experienced management and popularity of its brand.

Theme of the week:

Sharp Fluctuations in Stock Prices

1. Indian stock market remained bullish in the last quarter of 2004. The Sensex touched the peak of 6602 on December 31, 2004 on the back of rising rupee and falling global oil prices. Besides, the stock market received support from softening wholesale price index which after having shot up to 8.33 per cent towards the end of August, gradually came down to 5.78 per cent in January 1, 2005. At the same time, the broad S&P NCX Nifty also gained and closed at 2080.50. These events have raised the confidence of investors, inducing them to buy more scrips from the market. However, the optimism of investors was short-lived as the market turned volatile with the Sensex moving up and down in the subsequent days, depending on the behavior of rupee-dollar relationship, trend in wholesale prices and global oil prices. 

2. On the whole, 2004 was a rewarding year for investors in the Indian equity market. On a comparative basis a host of emerging markets outperformed the Indian market .When we consider the gains registered by Morgan Stanley Capital International (MSCI) emerging market country indices, India with 11 per cent gain during the year ranked seventh among its Asian peers and a poor 22nd among the global emerging markets. On a quarterly basis, on the other hand, India ranked third among 12 of MSCIs Asian market indices ( including Jordan). With a nearly 18 per cent gain during October-December quarter, the Indian index was placed behind Jordan’s 33.5 per cent and Indonesia’s 24.8 per cent gains during the same period. Among all the MSCIs emerging market indices, the index for Egypt topped with 115.4 per cent gain in 2004, while Columbia’s index moved upto 91 per cent to take the second spot. The MSCI country indices are widely followed by international fund managers as a performance benchmark. 

3. The year 2004 could also be remembered as the year of mid-cap stocks. As foreign managers jostled to pick up the frontline shares the market slowly moved towards mid-cap and small stocks. The 45 per cent rise in NSE’s mid-cap 200 index is a proof of FIIs interest in the stocks. Altogether, FIIs had pumped in $ 9.2 billion into the Indian market in 2004, a record high. Of this, $ 8.5 billion came into the equity market. A large chunk, around $ 2.5 billion came through the public offer route. Institutional dealers and fund managers said that FII inflows into the stock market could cross the $ 10 billion mark in 2005. In 2004, investors wealth grew by Rs. 4.2 lakh crore as the value of shares listed on the BSE spurted to Rs. 16.8 lakh crore from Rs.12.6 crore at the end of 2003. Market players expect the Sensex to cross the 7500 level in 2005 on the back of strong corporate performance in a rapidly expanding economy.

4. On the first day of the new year 2005, the Sensex gained 76.51 points to close at 6679.20. Reliance Energy was the biggest gainer in the 30- scrip Sensex basket gaining as much as 7.14 per cent to close at Rs. 561.85. On the first trading day of 2005, the market capitalization of stocks traded on the Indian bourses hit a historic high of Rs. 17,14,000 crore or $ 394.38 billion, while benchmark Bombay Stock Exchange (BSE) Sensex spurted 1.16 per cent to an all time high of 6679.20 led by foreign institutional investors buying telecomm and energy stocks in a big way. The value of shares on the Indian bourses is now equivalent to 69 per cent of Indian’s gross domestic product, estimated at around Rs. 25,00,000 crore. Incidentally, the buoyant market has added over Rs. 6,00,000 crore in capitalization since May 17, 2004 when share prices had crashed. The top 10 stocks in the market capitalization ranking accounted for 35.6 per cent of the total, with ONGC having the largest share at 6.9 per cent, followed by Reliance Industries (4.4 per cent), NTPC (4.3 per cent), Tata Consultancy Services (3.8 per cent) and Indian Oil ( 3.5 per cent).

5. On the second day of trading, under selling pressure in select heavy weight stocks the benchmark indices touched new intra-day high of 6669.3 but the Sensex ended with a loss of 28.2 points at 6651. A day later, the 30-share BSE Sensex lost nearly 3 per cent or a hefty 192 points to slump at 6458. With the market having risen continuously, many started booking profit by selling shares. The NSE Nifty also lost 71.5 points to end at 2032.2 points. This followed weak global markets and rating agency Standard and Poor’s warning on Indian’s fiscal deficit. In fact, this fall was the worst since May 2004. In the last two sessions alone, the Sensex lost about 220 points. Prior to the fall, in eight sessions between December 22, 2004 and January 03, 2005, the Sensex had gained 265.54 points. What seemed to weigh heavily on the market was the fall in overseas market on Federal Reserve talk of further rise in the interest rates, a firmer and a sharp fall in metal prices on the London Metal Exchange on fears of a slowdown in Chinese demand. Compared to its Tuesday close at 43.51 to the dollar, the rupee lost 32 paise and closed at 43.83. This led to selling by both institutional investors and retail investors. Among Sensex constituents, 29 out of 30 stocks lost ground. Though a correction was expected and even desired, few were prepared for the magnitude and speed of fall.

6. The bearish sentiment in the market has been attributed to four broad reasons. First, the outstanding position in the futures and options (F & O) segment was high at Rs. 15,000 crore which needed correction. Second, there was a weakening of the rupee against the dollar. In recent times, a strengthening of the rupee was a key factor driving FII flows into the country due to currency arbitrage opportunities in the domestic market. Third, the absence of fresh inflows from FIIs in the last few trading sessions which can be due to squaring up of their position in the new year. This also acted as a disincentive for the market which has seen liquidity based rally on the back of FII purchases in recent times. Four, the market looked overheated and valuation seemed to be high on absolute and relative terms. This made the players nervous about the state of the market. The crash in the US market a day before only added to their feeling of nervousness. All leading to a sharp fall in stock prices in a single day. 

7. The market continued to be in the grip of a bearish sentiment as it lost 91.42 points on the subsequent day. The Sensex ended the day at 6367.39 compared to the previous close of 6458.84. The 50 share SAP CNX Nifty was down 33.85 points or 1.67 per cent to 1998.35 points. The market breath was squarely negative as declining stocks outnumbered advancing stocks 1421:603 in the heavy volume of 34.10 crore shares transferred at BSE. Trading volumes took a hit as BSE and NSE posted combined turnover of Rs. 8,765.18 crore as against the previous day’s turnover of Rs. 10,158.12 crore. However, stock market reverted its three-day losing streak and ended 53 points higher at 6420 on the back of relief rally on Friday. Sebi figures show that FIIs were marginal sellers in the market as they sold Rs.32 crore worth of shares compared to Rs.58 crore on the previous day. The market sentiment was also lifted by report that there were chances of rapprochement between Ambani brothers over the control of reliance group. The robust corporate performance alongwith the prime miniser’s assurance that the reform process would continue helped to stabilize market sentiment. 

8. After the relief rally on Friday (7th January), stock prices crashed yet again on Monday (10th January). The benchmark Sensex started the week with 112 point or 1.7 per cent drop to close at a one month low of 6309. At the same time, Nifty lost 33.5 point (1.6 per cent) to end at 1982. Most dealers maintained that investors were booking profits after the market scaled new highs at regular intervals since early December. However, some dealers pointed out that everything was not bleak. A positive sign was that the advance-decline ratio which showed that there were more gainers in the market than losers. On the BSE, there were 1,555 winners compared to 839 laggards, a ratio of close to 2:1 in favour of winners. There was two days of continuous loss before it recovered by 118 points to touch 6221. The robust corporate performance together with the finance minister’s reiteration that the government had no plan to tax or cap investments by foreign institutional investors helped sentiment to turn positive. However, Thursday’s rise has come after 576.46 point fall in the last eight session between January 3 and 12. On the subsequent day, share prices fell as higher oil prices and weak US markets rocked refineries and automakers.

9. The year 2004 also marked the revival of IPO market. Already, IPO market has grown from a little over Rs.2,194 crore in 2003 to Rs. 30,000 crore in 2004. According to Prithvi Haldea of Prime database, public offerings worth Rs.63,000 crore are in the pipeline but it is difficult to say how much will materialize. The outlook is good for public offer of Rs. 1 lakh crore if the government and Sebi undertake reforms and improve infrastructure. A host of mega IPOs and public offers are in the offing from private companies such as Tata Sons, Reliance Infocomm, Idea, Hutch, BPL Communication, Tata Teleservices, Jet Airways and Air Decan. Major Central and State PSUs such as BHEL, Power Finance Corporation, Powergrid, ONGC, NHPC , Haldia Petrochemicals, Gujarat State Petroleum , NFL, Neyveli Lignite and Shipping Corporation of India are expected to tap the market. Besides, as many as 11 public sector banks – PNB, Bank of Baroda, Oriental Bank of Commerce, Allahabad Bank, Dena Bank, Syndicate Bank, HDFC Bank, J & K Bank, Centurion Bank and Yes Bank are also in the process of tapping the market. Similarly, a host of private sector companies such as AB corp, IDFC, Cyber Media, M & M and Sify are planning to enter the market. However, Haldea feels that the country still lacks retail investor base and hence not much of the household savings could be diverted to the capital market.

10. Meanwhile, the BSE has shifted 511 stocks from its B1 and B2 groups and 9 stocks from regional stock exchanges to the first phase of Indonext. There are 9644 companies listed on various stock exchanges in the country. The launch of Indonext will not only provide liquidity but will also proved to be a boon for stock brokers and sub-brokers of various regional stock exchanges (RSEs). At present, there are 20 RSEs with hardly any turnover. The launching of Indonext by the finance minister recently in Mumbai would also provide a new lease of life to around 7,500 stock brokers of RSEs. There are about 9,000 stock brokers registered with Sebi, of which 1,500 belong to either BSE or NSE. Indonext is expected to provide a boost to the business of the remaining brokers of RSEs. The new platform would enable companies with paid-up capital between Rs. 3 crore and Rs. 20 crore listed and traded on the BSE and various participating RSEs to be traded in a national market through a single order book on the BSE on-Line Trading (BOLT) system. The Indonext platform of the BSE witnessed trading in 512 of its 520 stocks on the first day of its launch. Of the 520 stocks, 166 were shifted from B1 group of the BSE, 345 were transferred from B2 group and 9 from RSEs. Indonext accounted for 3.4 per cent of the total turnover recorded on the BSE.

*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.

In case of any query, please write to us at epwrf@vsnl.com